Monday, March 22, 2010
Despite South Korea's status as an entrepreneurial powerhouse, its economy suffers from an inadequate service sector
By Rick Wartzman
Whenever I am in Seoul, as I was earlier this week, I find myself marveling at the place: its top-flight airport, its shimmering skyscrapers, its ubiquitous high-tech gadgetry—all of these outward signs of an economic transformation achieved largely in a single generation. It's no wonder that Peter Drucker called South Korea "undoubtedly" the most entrepreneurial nation on earth.
And yet if there is a weak spot to be found in Korea—and in many other countries around the world—it is one that Drucker also understood well: a huge service sector that is struggling to be productive.
Earlier this month, the South Korean government announced that it would invest 300 billion won (or $260 million) in research and development aimed at enhancing service-provider productivity. "Korean industries took it for granted to invest in R&D for products, but questioned the same necessity in services," one official explained. Now the plan is to promote technology that can spur advances in health-care delivery, advertising, design, business services, and more.
The Koreans are being driven, in part, by statistics showing that the nation's service sector is only half as productive as that of the U.S. But some wonder whether the strides the U.S. has made in this area over the last 15 years are more illusion than reality. Economist Paul Krugman, for one, has pointed out that much of the U.S.'s productivity prowess has supposedly been in financial services. "Given recent events," he asks, "are we even sure that the expansion of the financial system was doing anything productive at all?"
In any case, what we do know for sure is that wages for many service workers continue to lag badly—and this is what most concerned Drucker. In fact, with the ranks of service firms growing rapidly, he warned of "the prospect of social tensions unmatched since the early decades of the Industrial Revolution."
The service sector is varied and vast. In the U.S. today, more than 80% of jobs are to be found in services; in Korea, that number stands at about 70%. Drucker, for his part, tended to divide this giant universe into two different categories: knowledge work and unskilled or semiskilled positions.
The former group is, of course, in relatively good shape—especially those who have been able to obtain high levels of education. In the U.S., for instance, those with a college degree earn on average two-thirds more than those who've finished high school, according to the Goldman Sachs Global Markets Institute. And those with professional degrees boast incomes nearly twice as large as those with just a college diploma.
But the latter group—janitors and waitresses, retail clerks and nursing-home attendants—are in a much tougher spot. "In their social position," Drucker wrote in a 1991 piece in Harvard Business Review, "such people are comparable to the proletarians of years ago: the poorly educated…masses who thronged the exploding industrial cities and streamed into their factories."
For these workers to get ahead, Drucker believed that there was only one remedy: increasing their productivity (or output per hour of work). "The less productive an economy," Drucker asserted, "the greater the inequality of incomes. The more productive, the less the inequality."
Over the years, some experts have maintained that by its very nature, service work is labor-intensive and not conducive to productivity gains—a phenomenon known as "Baumol's disease" (so named for William Baumol, the economist who first described it).
But Drucker was convinced that it's possible to make significant leaps in service-sector productivity—though they won't typically come through the adaptation of new technologies, as the Koreans are hoping. Rather, Drucker said, the way to get there is to hark back to what Frederick Taylor, the "scientific management" pioneer, prescribed long ago: "working smarter."
Specifically, Drucker maintained that companies with proven success in this arena:
• "have defined the task" at hand;
• made certain that work is focused on that particular task, instead of running off in different directions;
• "defined performance";
• engaged every employee as "a partner in productivity improvement and the first source of ideas for it";
• and "built continuous learning" into each job.
"As a result," Drucker added, these enterprises "have raised productivity substantially—in some cases even doubled it—which has allowed them to raise wages. Equally important, this process has also greatly raised the workers' self-respect and pride."
The question is how soon any of this may actually happen on a scale big enough to narrow the wage gap between knowledge workers and their unschooled, unskilled service-worker cousins.
"Even in the most settled and stable societies, people will be left behind in the shift to knowledge work," Drucker acknowledged. "It takes a generation or two before a society and its population catch up with radical changes in the composition of the work force and in the demands for skills and knowledge. It takes some time—the best part of a generation, judging by historical experience—before the productivity of service workers can be raised sufficiently to provide them with a 'middle-class' standard of living."
All of which suggests that, in addition to the sort of investment the Koreans are attempting or the kinds of management techniques that Drucker advocated, nations may need something else if they hope to lift the fortunes of those with service jobs: a little patience.
Monday, March 15, 2010
To understand North Korea, look not to Confucius or the Soviet Union, but to fascist 1930s Japan
The face that North Korea presents to the world is widely held to be unreal. Kim Jong Il once told Madeleine Albright, Bill Clinton’s secretary of state, that the bombast in honour of himself and his late, great father, Kim Il Sung, was so much nonsense. Bruce Cumings, an historian, wonders what Mr Kim can be thinking, “standing there in his pear-shaped polyester pantsuit, pointy-toed elevator shoes, oversize sunglasses of malevolent tint, an arrogant curl to his feminine lip…and a perpetual bad-hair day? He is thinking, get me out of here.”
The notion that North Korea does not always believe what it is doing colours even diplomacy, which may soon start up again after months of tantrums on the part of the North. The aim is to get North Korea to give up its nuclear programmes as a prelude to normalising relations on the Korean peninsula. Many policymakers in America believe—against the evidence—that Mr Kim can be persuaded to do a deal. Some think that behind his antagonism lurks a desire for accommodation—and even an alliance.
A new book*, by Brian Myers at South Korea’s Dongseo University, shows just how wishful such thinking is. Dismissing what the North Korean regime tells the outside world, the author looks instead at North Korea’s domestic propaganda, the Kim family cult and the country’s official myths. From these he pieces together what North Koreans are supposed to believe. He concludes that Mr Kim’s power is based not just on surveillance and repression. Nor can its survival be ascribed simply to the effective brainwashing of the population. Rather, the personality cult proceeds from powerful myths about race and history.
Ideas of racial purity lie at the heart of North Koreans’ self-image. Since the regime’s founding, they have been taught to think that they are a unique race, incapable of evil. Virtue, in turn, has made Koreans as vulnerable as children. Korea’s history, the regime insists, is the history of a child-race abused by adults—Chinese, Japanese and American. Pure, spontaneous and naive, Koreans need a caring, protective leader. The upshot is the Kims’ peculiar cult, of state-sponsored infantilism.
You see no chin-thrusting depictions of father or son on the monumental streets of Pyongyang. In art as in life, both Kims are effeminate and podgy. Warnings against fleeing to China are conveyed as directed at a squirrel who wanders too far. In paintings, Kim Il Sung tucks children into bed. The nation lies at the “breast” of Kim Jong Il and his party. As commander-in-chief of the armed forces, Mr Kim is even called “Mother General”.
There is a precedent for this weirdly hermaphroditic parent figure: Emperor Hirohito in fascist, imperial Japan. Then Hirohito was depicted as the heart of a pure nation, which was ready to die for him because emperor and people were one. When Japan ruled Korea from 1905-45, racist ideologues said that the two countries shared the same bloodline. They were both members of the winning racial team.
After the second world war, Mr Myers recounts, Kim Il Sung kicked the Japanese off the team and pinched all their ideas. Former propagandists for the Japanese were set to work manufacturing North Korean myths. Mount Paektu was endowed with Fuji-like sacred status. Kim was painted atop a white charger, like one Hirohito used to ride. And, like Hirohito until Japan’s surrender, Kim Jong Il, like his father before him, was not heard speaking by his people in public broadcasts. To an extent, such fascism has worked. Many North Koreans see the mass robotic gymnastics of the Arirang games (which bore Kim Jong Il rigid) not as a grim Stalinist display but as a celebration of pure blood and homogeneity.
The counterpart to a childish state at home is a hostile world outside. For this Japan and, especially, imperialist America are essential. Mr Myers conveys well the intensity of race-hatred directed at America. Americans are chillingly scorned as miscegenated “bastards”, in contrast to pure-blooded Koreans. Again, myths are recycled from militarist Japan. Christian missionaries are said to inject innocent Korean children with fatal bacilli. The author valuably describes how propagandists depict diplomatic overtures by South Korea and America as quaking capitulations. Aid becomes tribute, so aid-bags stamped with the stars-and-stripes are tolerated when turned into use as holdalls. All this has a bearing as the diplomatic merry-go-round cranks up again.
Mr Myers wonders why Mr Kim would ever give up confrontation with America when his legitimacy rests upon it. After a deadly famine in the mid-1990s and, in recent weeks, a bungled currency confiscation, he has no interest in claiming to stand for material prosperity. Anyway, South Korea wins that competition hands-down. Rather, nuclear crises since 1994—and the detonation of a first nuclear device in 2006—allow him to present himself as the nation’s defender against aggression. In 2009 the country’s “military-first” policy, making the armed forces the nation’s highest priority, was even enshrined in the constitution. Fascism is Mr Kim’s last refuge. Giving up nuclear weapons would spell the end. So he negotiates with America not to end tensions, but to manage them: neither all-out war nor all-out peace.
What would bring the regime down, then? Thanks to the advancing creep of knowledge, North Koreans know that the South is richer by far. But the propaganda state has found a way around that. South Koreans may be rich, but they are desperately unhappy because they are under the thumb of the despised Yankees. Harder to deal with, by far, would be to find out that South Koreans are content in their republic.
Market forces 1, brute force, 0
An embarrassing climb-down puts Kim Jong Il in a difficult position
However loathsome his neighbours find Kim Jong Il, the nuclear-armed North Korean dictator, most admit that beneath the big hair lurks the mind of a tactical genius with a flair for survival. At home North Koreans are smothered by his ruthless personality cult. Abroad, he is an adept blackmailer: act mad enough to be dangerous; then conciliate for cash.
Recently, however, he has made tactical mistakes on both counts. Diplomats think none is so serious as to endanger his regime. But the blunders give heart to those who believe they can eventually push North Korea back to talks about dismantling its nuclear arsenal. And they reaffirm the benefits of what Americans call “strategic patience”: waiting until North Korea is desperate enough to offer concessions.
Even the regime appears, in its own odd way, to have admitted the most recent blunder. News reports suggest North Korea has reversed some elements of a crackdown on private enterprise that it unleashed with a cack-handed redenomination of the won on November 30th. In the interim, the currency collapsed, the price of rice surged by as much as 50 times, and much of traders’ working capital for buying and selling goods was wiped out. As food distribution seized up, some rare grumbles of protest were heard.
But since early February, regulations on trading in the jangmadang, or markets, across North Korea appear to have been lifted. Implausible official prices have been posted—from 240 won ($1.78) for a kilo of rice (a bit less than a pair of socks) to 25 won for a toothbrush.
Meanwhile, the Dear Leader has made a perhaps unprecedented apology to his people for feeding them “broken rice” and not enough white rice, bread and noodles. He was, he said, “heart-broken”, and implicitly acknowledged he had violated an oath to his godlike father, Kim Il Sung, to feed the people rice and meat soup.
Adding to the poignancy, experts say the bungled reforms were done in the name of Kim Jong Un, the dictator’s third son and potential heir. His involvement may have been part of a strategy to reassert Stalinist-style state control of the enfeebled economy ahead of 2012, the 100th anniversary of grandfather Kim’s birth.
It seems unlikely the plan has been abandoned altogether, not least because the small markets that have flourished since the famine of the 1990s pose such a challenge to the state’s authority. But the ineptitude must have been glaringly obvious, even in the hermetic state.
“The government has never said sorry to the people, especially on a topic as sensitive as rice,” says Andrei Lankov, of Kookmin University in Seoul, a writer on North Korea. “Because of Kim Jong Il’s age and the age of those around him, it looks like he may be losing touch with reality.”
Mr Lankov has described North Korea’s leaders as brilliant Machiavellians. However, he believes there may have been a similar miscalculation in North Korea’s recent behaviour towards America, China, Japan, Russia and South Korea, the countries with which it started spasmodic “six-party talks” on denuclearisation in 2003. Its firing of a long-range missile and explosion of a nuclear bomb last year hardened the resolve of the five to strengthen United Nations sanctions against Pyongyang. However much Mr Kim has cajoled and coaxed since then, he has not yet achieved his usual success in dividing the five.
What’s more, diplomats say he seems increasingly open to a return to the six-party talks, which last year he vowed “never” to do. China, which is closest to North Korea and chairs the six-party forum, sent Wang Jiarui, a senior Communist Party official, to meet Mr Kim this week and invite him to Beijing. Mr Kim made no public commitment on the six-party talks, but his nuclear negotiator returned with Mr Wang to the Chinese capital.
Lee Myung-bak, South Korea’s president, surprised his countrymen by saying he, too, hoped to meet Mr Kim “within this year”. The timing was odd. His statement came as North Korea was lobbing artillery shells threateningly into the Yellow Sea. But it revealed what officials say is a twin-track process in Seoul to engage North Korea, bilaterally as well as in the six-party framework. Wi Sung-lac, South Korea’s special representative for peace on the peninsula, thinks the North is “moving in the direction of talks”.
Both North Korea and its six-party counterparts have set such tough conditions on coming together that it would be rash to expect too much. North Korea wants UN sanctions lifted, and a peace treaty with America to mark the formal end of the 1950-53 Korean war before restarting talks. America has resisted both. An East Asian diplomat says the other five nations are demanding that North Korea take “concrete measures” towards denuclearisation before talks and the lifting of sanctions. “We’re not giving any carrots.”
Underscoring the resolve, humanitarian assistance to North Korea has slowed to a trickle. South Korea sent only $37m of public aid last year, compared with $209m in 2007. Officials say Mr Lee is adamant no money will be spent coaxing North Korea to a summit. Talks on cross-border tourism and factories, another means for Pyongyang to extort hard currency from the south, have made no progress.
Mr Kim still has some trump cards up his sleeve. Tensions between China and America over Taiwan and Tibet provide a thread of disharmony to tug upon. And China has a strategic eye on North Korea’s ports and minerals, which some diplomats fear may encourage it to be overly generous to the regime.
But the mere hint of economic fallibility in a regime that demands almost religious devotion from its subjects may turn out to matter more than the diplomatic manoeuvres. It comes at a time when North Koreans, using smuggled DVDs and telephones, have a better idea than ever before of how far their living conditions fall short of their neighbours’. That is a rare point of vulnerability for Mr Kim’s interlocutors to exploit.
Sunday, March 07, 2010
By EVAN RAMSTAD and JAEYEON WOO
South Korea Works Overtime to Tackle Vacation Shortage
The government here is cracking down on vacations: Workers, it seems, aren't taking enough of them.
South Koreans were told for decades to sacrifice everything to build the country's economy. Now South Koreans are world-champion workaholics, according to the Organization of Economic Cooperation and Development, logging more hours a year on the job than people in any other developed country.
.The government is trying to change that. The ministry in charge of government personnel issued a directive in January requiring the country's one million state workers to submit to their bosses a plan to take 16 days off this year.
The hitch: In a hierarchical society where superiors set the tone in business and politics, some of the very bosses behind the vacation push can't be bothered to take them.
President Lee Myung-bak raised the national vacation deficit at a cabinet meeting last summer, pointing to a survey showing that the typical government worker took only six of the allotted 23 days. Mr. Lee's personal tally since taking office in February 2008, according to media reports: four days.
..One member of Mr. Lee's cabinet, Unification Minister Hyun In-taek, told The Wall Street Journal he passed the government's vacation directive throughout his agency, which is responsible for South Korea's dealings with North Korea. But he has taken no vacation himself.
"I want them to take more time off," Mr. Hyun says. "But as for me? I don't know."
To cajole reluctant holidaymakers, the government has brought in the heavy artillery: a guy from Germany, home to some of the world's top vacationers.
Born there as Bernhard Quandt, he moved to South Korea in 1978 and became a naturalized citizen in 1986, changing his name to Lee Charm. Mr. Lee, who teaches language on TV, hosts radio shows, writes books and gives lectures about Korean culture, is one of the country's most visible foreign faces.
In August, Mr. Lee was named the head of the government-owned Korea Tourism Organization, whose 550 employees develop tours, promote the country and should, theoretically, know a few things about taking time off. A few months later, he called a company-wide staff meeting where he announced he wanted everyone to take at least two weeks off in 2010.
"I didn't take it very seriously," says KTO employee Seo Dong-woo, who helps plan tourism promotions and figures he's taken, at most, five days off in a year. "I thought: 'Is that really possible?' "
It wasn't. Mr. Lee's staff told him it was too much to expect workers to miss two weeks in a row, so the boss scaled the plan back to seven days off in a row.
Mr. Seo still hasn't finalized his own plans.
Many workers, and the country's media, have cheered the government initiative.
There's hope it will spill into the private sector, where vacation-shirking is also rampant. SK Telecom Co., a leader in tearing down old workplace hierarchies, says its workers take five to 15 of their available 22 days off. At LG Electronics, the average is 10.
Hyundai Heavy Industries boasted last month that its top managers would work mid-February's Lunar New Year's holiday, visiting foreign plants. "Every year Hyundai Heavy's top management carries out the MBWA (Management By Wandering Around) policy during national holidays and summer vacations to check project progress and to have meetings with owners," it said in a news release.
Some workers say they don't know what to do with the free time. Others are protesting the state's vacation push, accusing leaders of trying to save money: In many government agencies, employees are rewarded with extra pay for unused vacation days.
"You should be able to take a vacation whenever you feel like," says Yoon Jin-won, spokesman for the Korean Government Employees' Union, the biggest union of government workers. "When the government forces you to do it, I would say it violates human rights in a sense."
South Koreans worked an average of 2,316 hours in 2007, the latest year for which data are available. That's down from 2,592 a decade earlier but still well above the average of 1,768 for the 30 countries in the OECD and 1,794 in the U.S., according to the OECD.
South Korea's productivity, however, ranks below all but some former Soviet bloc countries among OECD members.
The KTO's Mr. Lee says he's trying to persuade South Koreans that vacation can recharge batteries and spur creativity. In interviews in the Korean media, he preaches the "three joys" of vacation—the joy of planning one, of being on one and of remembering it later.
South Koreans often miss that formula, Mr. Lee says. "They go when the opportunity arises, usually very spontaneously. And because they didn't prepare well, they have a lot of stress and usually have to pay more. And when they get back, instead of having nice memories, they feel tired and stressed out and think, 'Never again.' "
The government's focus on the vacation problem began when President Lee Myung-bak brought up the survey to cabinet members last July. Later, the culture minister began urging people to use their full vacation time, and the president appointed Mr. Lee, the naturalized German, to head the KTO.
But noncompliance can be found even at the core of the government's efforts. The official at the Ministry of Public Administration and Security who wrote and issued the 16-day vacation requirement last month was Kim Jin-soo, a director in the ministry's personnel management office. Mr. Kim says he took no time off last year.
When he and his staff got together to organize vacation days after his directive, others took time in January. Mr. Kim scheduled his day off for Feb. 1, a Monday, planning to use the three-day weekend to visit his hometown about three hours from Seoul. But then, Mr. Kim says, "Something came up so I couldn't go."
His sister, Kim Jung-ja, who planned to host him, says she wasn't surprised.
"Our mother passed away three years ago, and he couldn't visit often while she was alive, either," she says. "I think he is like the busiest person in the whole world."
So the author of the government's vacation policy deferred his planned time off to the big Lunar New Year holiday last month.
Contacted after the holiday, Mr. Kim said 43% of his ministry's staff added two extra days to the long weekend. He wasn't among them.
"There are so many things to take care of" at work, he said. "I am thinking about taking vacation in March."