Thursday, December 30, 2010

South Korea Unveils World’s First Commerical Electric Bus

Wednesday, December 29, 2010

South Koreans worry too much about a free-trade deal

America's FTA with South Korea

ON THE 38th parallel, a country that aims to be one of the world’s most open trading nations sits next to one of the most closed. That North Korea has deadly warheads aimed at Seoul means South Korea needs friends. But since the South gave in to American pressure to amend a free-trade agreement on December 3rd, many of its citizens have accused it of paying a high price for that friendship. Opponents of its president, Lee Myung-bak, playing on the mood of the moment, have likened the deal to being hit by North Korean artillery fire.

The government in Seoul insists that its desire for American support in dealing with North Korea never entered the free-trade equation. But whereas Barack Obama has used the agreement to burnish his pro-business credentials and win favour with some of his political opponents, in South Korea few are happy. In the National Assembly on December 7th both the ruling and opposition parties demanded an apology from the trade minister for breaking a promise not to tamper with the 2007 agreement, which has yet to be approved by either country’s legislature.

Choi Seok-young, the chief trade negotiator, admits the South Koreans reluctantly gave in to American demands but insists they got concessions. He expects a big political battle to have the updated agreement ratified. The Obama administration boasts that by postponing the elimination of American tariffs on South Korean cars and trucks, and winning concessions on safety and environmental issues, it has helped American carmakers. It also won the right to protect America’s carworkers from “harmful surges” of South Korean imports. South Korea’s main payoff was a miserly two-year extension of tariffs against imports of American pork. To the chagrin of some prominent Democrats in America, it also managed to stave off further pressure to reopen its market to American beef.

The tariff scorecard is only part of the story. South Korea exports far more cars to America than vice versa (see chart). Even Ford, the biggest-selling American carmaker in South Korea, barely sells enough in a month to fill a multi-storey car park.

Cheong In-kyo of South Korea’s Inha University says his country could still benefit immensely from the agreement. He says the amendments were necessary in order to ensure the deal’s passage by Congress. What’s more, he argues, the agreement will benefit South Korea by bringing competition into heavily regulated and inefficient service industries.

South Koreans may groan, but their trade negotiators are held in awe by their counterparts in countries like Japan, whose car industry competes fiercely with South Korean brands. Now that South Korea has an agreement with America to go alongside an earlier agreement with the European Union, it hopes to gain almost unrivalled access to the world’s two biggest markets. If that makes the South feel any more comfortable about the North, so much the better. ◦

Risking life and limb for hot pizza in South Korea,0,6982566.story

South Korea's motorcycle deliverymen speed, run red lights and drive on the sidewalks to make it. Now an increase in accidents is leading the nation to rethink the need for such quick arrivals.

By John M. Glionna, Los Angeles Times
December 29, 2010

They're on the streets at all hours, the motorcycle deliverymen slicing through traffic in their race against the clock, defying both the law and common sense to get their cargo delivered on time.

Run a few red lights? Pull a last-second dash across six lanes of traffic? No problem. And if the zigzag through gridlock fails, there's always the sidewalk; pedestrians know to stay out of the way.

"It's not that I want to deliberately disobey traffic laws, but when you have customers breathing down your neck, it's really hard not to," deliveryman Bang Chang-min said. "When I'm on a bike, I'm under so much pressure that I feel I transform into somebody else."

But the recent death of a pizza deliveryman may cause South Koreans to rethink their obsession with zippy fast-food conveyance. On Tuesday, government officials announced a new educational campaign to encourage consumers to think safety over speed.

In the last five years, 4,098 vehicular accidents nationwide involved motorcycle deliverymen, a subculture dominated by teenagers looking for part-time work, according to government statistics.

Activists blame a deadly mix of youthful recklessness and a corporate system that demands that drivers take chances. And such accidents are on the rise: Last year saw 1,395 accidents involving deliverymen. Although there are no statistics on related fatalities, unions estimate that such deaths have reached double digits for the last decade.

In South Korea, all kinds of food are advertised with quick home delivery, varying from burgers and fried chicken and items bought at mom-and-pop groceries. The result is often road chaos. Deliverymen dash about the city with boxes strapped to the backs of their motorcycles. Some drive one-handed so they can carry more orders.

Delivery jobs are stressful and the turnover rate is high. With some pizza companies, drivers must absorb the loss if they arrive late and the food becomes free. Others pay drivers, most of whom make less than $5 an hour, an incentive of 40 cents for on-time arrivals. Some even display a ticking clock on their websites when an online order is completed.

Activists say that speed kills.

"The clock starts as soon as the order is taken, putting immense pressure on these young men," said Kim Young-kyung, president of the Youth Community Union. "Companies train new employees to use every available method regardless of the law. The bottom line is to get there on time."

Pressure put on firms has produced little results.

"Companies tell government investigators that young men like to ride their motorcycles fast, so there's little they can do," Kim said. "These kids are often too young to think on their own. But instead of emphasizing safety, the bosses exploit them."

Last week, a 24-year-old Pizza Hut deliveryman was killed when he was hit by a taxi that had run a red light. On the same day, an 18-year-old driver for another firm was injured in a collision with a bus, officials say.

Protesters recently rallied outside the Employment and Labor Ministry, holding up placards, one of which read, "The 30-minute delivery system kills people."

In its announcement, the ministry said it would launch a TV, radio and subway advertising campaign, along with the dispersal of leaflets at fast food outlets, emphasizing the high accident and injury rate among motorcycle deliverymen.

Activists say companies have a long way to go to ensure the safety of deliverymen. One hamburger chain, for example, requires drivers to wear helmets without chin guards because they fear the fuller head gear looks menacing to customers. Drivers have since endured facial injuries in road accidents, Kim said.

Bang said he has worked for two firms, each with the same rules.

"Both said safety was a priority," he said, "but the aim is to get to the destination as fast as possible." ◦

Monday, December 27, 2010

How Korea was Caffeinated

To learn the story behind Korea’s fixation on the coffee bean, you have to travel from the streets of Seattle to the slopes of North Korea’s Mt. Baekdu.

Words by Andray Abrahamian

Green coffee beans sit in a large bag, waiting to be micro-roasted in the machine just next to a barista, who is absorbed frothing milk for a cappuccino. The beans will soon be dark, rich and above all, fresh. Is this a scene from Milan? Brooklyn? Melbourne? No.
It’s from Yanji.

Where? Yanji is a small city just north of the DPRK and only two hours from the Russian border. Shoddy buildings, traffic flows, buildings, rubble and rabble combined with Hangul on all the signage make it seem like you’ve stepped into 1970’s Seoul. What is a microroastery doing here, 26 hours train ride from Beijing? Simply: South Koreans come here on the way to hike Mt. Baekdu, and South Koreans have become the coffee connoisseurs of Asia.

In every major city in South Korea, in-house roasted beans, extensively trained baristas and expensive imported Italian machines deliver coffee to an increasingly sophisticated set of consumers. Baristas usually display their qualifications behind the bar, especially if they’ve placed in one of the many barista competitions around the country.

It wasn’t always like this. It was more like this:
You deposit a bit of pocket change and push a button. A paper cup rattles into the cavity, various powders get excreted into it, dowsed with piping hot water and presto! Not 10 seconds after your coins plopped into the machine, you’re holding a small cup of “coffee.” Really, it’s just a few freeze-dried granules of the lowest-possible-grade coffee beans, a bunch of sugar and whitener, which includes stuff like sodium caseinate, diglycerides and a host of other chemicals that sound like baddies from Dr. Who.

For a generation, slurping one of these abominations to stay awake at one’s desk or to taste something sweet after a belly full of salt and spice was coffee for Koreans. Even at dabang—pseudo-traditional Korean cafes you can still spot from time to time—only instant coffee was to be found.

How did this grim situation change? One word, four syllables: Starbucks. Say what you will about the chain: that it’s fast-foodized coffee; that it contributes to a generic urban landscape; that it has sacrificed quality for market share; that it’s overpriced; that the pastries are packed with preservatives; that the founder is responsible for the underhanded destruction of the Seattle Supersonics. Yes. Say all those things.

But what Starbucks has done all over the world is introduce people to coffee as a luxury good. Especially in Asia, going to Starbucks has become a social signifier: “I’m a sophisticated, modern consumer.” In Korea, this gave rise to a specific brand of poseurs: dwoenjangnyeo (된장녀), young women who eat a cheap triangle kimbap for lunch so they can spend their meal allowance at Starbucks, being seen all afternoon.

Starbucks opened their first Korean branch in 1999, had over a hundred outlets by 2004 and are planning to hit 360 nationwide in the coming months. In Korea, they have the only Starbucks with no English sign (스타벅스 커피 in Insadong) and for a time the largest Starbucks in the world, a five-story monster in Myeongdong that has since changed hands. They are the biggest player in a market dominated by several chains, both foreign (like Coffee and Tea Leaf) and local (like Caffe Bene). Thanks to them, words like “barista,” “macchiato” and “double shot” are now part of the Korean language’s extensive list of loan words.

As more Koreans travel abroad and learn to appreciate foreign cuisine in general, the education provided by chain coffee shops has helped local coffee nerds find a market for their passion. Independent cafés started opening up in the 2000s and now are easy to find in any downtown or university neighborhood. Usually very comfy, these indies also have a unique sense of style: hand-drawn art, local music and patterns of patronage and service make Korean cafés distinctive.

Many cafés are table service affairs. You order at the counter, but the coffee is brought out to you, often with pictures – “latte art”—sketched in the milk. Almost all baristas have undergone training for this. Attention to detail at independent coffeehouses tends to be very high. Menus are often more extensive than in the United States, with rarely seen Italian derivatives of espresso such as longo (a shorter, stronger pull of espresso) and shakerato (espresso shaken over ice, like a martini) alongside local favorites such as green tea latte or sweet potato latte (better than it sounds).

With perhaps a stereotypical penchant for exam-taking, most Korean baristas study formally for anywhere from three months to two years. They receive certification and are thus very knowledgeable and dedicated to their craft. Cafés stay open until late, making them hotspots for couples on dates and groups of friends who want to hang out but not drink booze. Unlike the west, coffee is not yet needed to start the day. Outside of the chain cafés, it’s unusual to find a place pulling shots before 11 am.

Though it may sound bolder than a blue mountain hand-drip, I’m prepared to say that the average cup of coffee at a Korean café is of better quality than in the United States. The speed at which this has become the case is staggering; five or six years ago, a good cup of coffee was about as rare as a DMZ tiger. Today, pastries and cakes sometimes lag behind due to a lack of artisanal bakeries, but this too is gradually improving.

Korea has taken coffeehouse culture from Europe, via America and made it its own. If this is a form of cultural imperialism, you don’t hear many traditionalists complaining, though this is probably because they’re addicted to caffeine. To get their fix, they can visit quality, independent cafes in almost every Korean city. For Seoulites, flip the page for a list of ten true gems just waiting for you to discover.

Emperor Gojong: Coffee Lover
The first Korean coffee connoisseur came long before the Starbucks invasion, around the time of the more insidious Japanese takeover of Korea.

Japanese expansionists were putting the Joseon Dynasty under tremendous pressure at the end of the 19th century. In 1895, they judged Empress Myeongseong to be an obstacle to their political ambitions and had her assassinated. Fearing a coup d’état or worse, her husband Emperor Gojong took his court and fled from the palace to the Russian Legation early the next year.

There, he was introduced to a heavily sugared style of coffee, which he grew to love and drink regularly. He governed the country and served coffee as he gave audiences to various officials and envoys. Sadly, coffee culture didn’t take off at that time, but to be fair, Koreans had slightly more important things to worry about. ◦

Friday, December 24, 2010

China’s North Korea Shift Helps U.S. Relations

WASHINGTON — Few debates have strained relations between the United States and China more this year than how to handle an unruly North Korea. But after a tense week, when the threat of war hung over the Korean Peninsula, the Obama administration and Beijing seem finally to be on the same page.

Administration officials said the Chinese government had embraced an American plan to press the North to reconcile with the South after its deadly attacks on a South Korean island and a warship. The United States believes the Chinese also worked successfully to curb North Korea’s belligerent behavior.

China’s pressure, several senior officials said this week, might help explain why North Korea did not respond militarily to live-fire drills conducted this week by the South Korean military, when a previous drill drew an artillery barrage from the North that killed two South Korean civilians and two soldiers.

As evidence of the policy shift, officials pointed to recent remarks by China’s foreign minister, Yang Jiechi, in which he urged the North and South “to carry out dialogue and contact.” Previously, Beijing’s response had been to propose an emergency meeting of the six-party group that negotiates with North Korea over its nuclear program, a step the United States opposed as rewarding the North’s aggression.

China and the United States still have major differences on issues ranging from currency policy to climate change. And just last Sunday, skeptics pointed out, Beijing blocked a statement in the United Nations Security Council that would have explicitly condemned North Korea for the artillery attack.

Still, the agreement on how to deal with North Korea removes a substantial irritant in the Beijing-Washington relationship four weeks before President Hu Jintao of China makes a state visit to Washington. It also creates a glimmer of hope, officials said, that the United States can resume a dialogue with North Korea, whose hostile behavior has raised tensions to the highest level since the Korean War.

“The silver lining of last weekend is that the Chinese, for the first time, were worried that things were spinning out of control,” said Victor Cha, a Korea expert at the Center for Strategic and International Studies who worked in the George W. Bush administration. “It moved the Chinese more in the direction we wanted them to move.”

The Obama administration claims some credit, too, noting that the change came on the heels of a visit to Beijing by American officials, led by Deputy Secretary of State James B. Steinberg. A week before that, President Obama called Mr. Hu and bluntly urged him to put a tighter leash on the North Korean leader, Kim Jong-il.

China swiftly dispatched a senior diplomat to Pyongyang, the North Korean capital, and officials said he conveyed a strong message about “the unacceptability of attacks and killings of South Koreans,” said a senior American official, who spoke on condition of anonymity in order to discuss sensitive diplomatic matters.

“The idea that there could be these one-off provocations without expectation of a military response, as the North had behaved in the past, the Chinese now understand that this is no longer the reality, no longer acceptable,” he said.

China’s push for a rapprochement between the North and South is even more significant, another official said, because it unifies the five parties that deal with Pyongyang: the United States, China, Russia, Japan and South Korea. China’s reluctance to press North Korea was sending Pyongyang a mixed message, he said, especially since China is the North’s most influential ally.

Russia’s role has also been important, officials said. The Russian foreign minister, Sergey V. Lavrov, spoke out against the North Korean artillery shelling. And the comments by Mr. Yang, China’s foreign minister, about the need for North-South engagement came in a phone conversation with Mr. Lavrov that was released by the Chinese Foreign Ministry.

North Korea signaled that it was open to such an engagement in meetings with Gov. Bill Richardson of New Mexico, who made an unofficial visit to Pyongyang last weekend. Mr. Richardson said the North was willing to ship spent fuel rods to South Korea — a move that could effectively end its production of plutonium, from which it has manufactured several nuclear bombs.

Administration officials played down Mr. Richardson’s trip, saying he was carrying no proposals from the United States. Shipping fuel rods to South Korea is not a new idea, one official noted, and the South Korean president, Lee Myung-bak, seems in no mood to accept it. North Korea has also done little to alleviate concerns about its recently disclosed uranium-enrichment facility, aside from its offer to Mr. Richardson to allow nuclear inspectors back into the country.

Nevertheless, Mr. Steinberg and Jeffrey A. Bader, a top White House adviser on Asia, are likely to visit Seoul soon to explore whether the temporary lull in North Korea’s aggression creates an opening for diplomacy.

If the North makes amends for the shelling last month of Yeonpyeong Island and the torpedoing of the South Korea warship, the Cheonan, which killed 46 sailors, officials said it could open the door to contacts between the United States and North Korea. But they were vague about what kind of gesture would be sufficient.

“The South needs to have satisfaction that their concerns over these acts have been addressed,” an official said. “The North cannot go around the South; they cannot sidestep the South.”

By going ahead with military drills in the face of North Korea’s threats, analysts said Mr. Lee might have bought himself some room to negotiate. But, they added, outsiders should not read too much into the North’s decision to hold its fire; the government’s motives were, as ever, cloaked in mystery. ◦

Sunday, December 12, 2010

How the U.S. Unfroze a Trade Deal with South Korea

Ford's Mulally was consulted nearly every step of the way
By Hans Nichols and Mark Drajem

It wasn't exactly Bretton Woods, the bucolic New Hampshire location where nations met in 1944 to establish a new financial world order. This time the scene was a Sheraton hotel in Columbia, Md., and a manmade lake. Such was the backdrop for the U.S.-South Korea trade deal, whose final details came together on Dec. 2 after the top two negotiators took an hour-long stroll in frigid temperatures alongside the nearby lake.

The day before, President Barack Obama, on the eve of a secret trip to visit the troops in Afghanistan, was in frequent touch with negotiators, say White House aides who spoke on background so they could talk candidly about negotiations with foreign leaders. Obama had been hearing all year that a testy relationship with business was preventing him from realizing his goal of doubling American exports in five years to create jobs and spur economic growth. A reworked free-trade agreement with Korea, initially negotiated by President George W. Bush, could be the first step toward healing that rift.

Ford Chief Executive Officer Alan R. Mulally, representing the U.S. auto industry and the auto company with the most at stake, was consulted nearly every step of the way, Administration officials say. As the talks hit a roadblock, he was asked to attend a Dec. 1 meeting in Treasury Secretary Timothy R. Geithner's office. The White House wanted his support, along with that of Bob King, the United Automobile Workers president, and the top Democrat and Republican on the House Ways and Means Committee, Sander M. Levin and David Camp, both from Michigan.

The backing of executives, union leaders, and lawmakers raises the odds of winning passage of the deal in Congress next year. And Obama wants the Korea pact to serve as a new model for trade talks, says Michael Froman, the Deputy National Security Adviser and one of the lead Columbia negotiators. Obama sought "to forge a new coalition of support for trade and then sold it personally" to South Korean President Lee Myung Bak, says Froman. "The Korea deal is important," U.S. Trade Representative Ron Kirk says, "but the importance of concluding it goes beyond Korea."

The Administration is now working on reducing nontariff trade barriers, such as arbitrary license plate size requirements, with other trade partners. It's also discussing reducing similar nontariff barriers, such as onerous safety standards, with Mexico and the European Union. Trade talks with Panama and Colombia are pending, and there may be new ones with Vietnam and Malaysia. Obama hopes a widely supported trade deal with South Korea will soften opposition to future deals, the officials say.

The pact, which the White House says will increase trade with Korea, now $68 billion a year, by some $11 billion, almost died when Obama and Lee failed to agree at the November Group of 20 summit in Seoul, mostly over differences on auto tariffs. "It was a courageous move in Seoul to walk away," says Ziad Ojakli, a Ford lobbyist. "A bad Korea auto template would have been there for the Indians, the Chinese, and others."

South Korean and American negotiators, sequestered for two days at the Sheraton Columbia Town Center Hotel in suburban Maryland, about an hour's drive from the White House, were again at an impasse on Dec. 1. The hang-up: how quickly to phase out a 2.5 percent tariff on imported Korean autos. The tariffs make Korean cars more expensive in the U.S., giving Ford a leg up with price-conscious consumers. The U.S. tariffs, however, are far lower than the 8 percent levy Korea imposes on American cars. Ford initially wanted the tariffs for 10 more years and had already come down to seven years. Seoul wanted three or four.

Mulally joined Geithner and National Economic Council Director Lawrence Summers at Treasury. Froman, on a speakerphone from Columbia, reported that the talks were foundering. The officials asked Mulally if he could abide a five-year tariff phaseout. He said he'd have to discuss it with the UAW and Michigan lawmakers. That evening, Obama summoned Froman and Kirk to the White House for consultation. They brought some good news: Mulally, the UAW, and Michigan lawmakers had signed off on the five-year deal.

At 10:30 that night, Obama called Lee with a framework for an agreement, including the five-year language. In an hour-long conversation, their second since a North Korea artillery barrage killed four South Koreans on Nov. 23, Obama stressed the importance of a trade pact to the two countries' strategic relationship. Lee was noncommittal, though he wanted the Maryland negotiations to continue.

On the morning of Dec. 2, with the talks still stalled, Froman suggested a walk with his counterpart, Trade Minister Kim Jong Hoon, who had been ducking outside to smoke. Froman and Kim strolled alongside the nearby lake, which was in the process of being dredged. Froman warned that failure would be a missed opportunity for Seoul to improve ties with Washington, the officials say. Kim relented, as long as Korea could prolong tariffs on U.S. exports of pork products to his country from 2014 to 2016. He also wanted a more generous allocation of temporary work visas. After midnight, Froman e-mailed Air Force One, en route to Afghanistan, that they had a deal.

The accord allows the U.S. to end its 2.5 percent auto tariff in five years. South Korea will cut its 8 percent tariff on U.S. automobile imports to 4 percent immediately instead of eliminating it, a White House fact sheet says. Ford and other U.S. automakers can send 25,000 cars that meet U.S. safety standards annually to South Korea, even if they do not meet Korean standards.

Not everyone is pleased. Senate Finance Committee Chairman Max Baucus, a Montana Democrat who had demanded that South Korea drop restrictions on U.S. beef imports from cattle older than 30 months, said he was unhappy with the agreement. American beef producers will gain an advantage over Australia under a 15-year phaseout of a 40 percent tariff.

The South Korea deal has brought Obama some rare praise from the U.S. Chamber of Commerce, which fought the President's agenda on health care and financial regulation. "The Administration has done its part," U.S. Chamber of Commerce President Thomas Donohue said in a statement. Now, he said, the Chamber will help round up votes.

The bottom line: Obama hopes a South Korean trade deal will improve ties with American business and pave the way for more accords with other nations. ◦

Korean not allowed to be spoken at language cafe

When ifriends opened in a former bar in Shinchon, customers could have taken it for just another coffee place that this college area in Seoul is saturated with.

As it hits two o’clock, groups of fours and fives populate a dozen tables to practice foreign languages in a relaxed environment.

Girls looking for jobs with airlines conduct mock interviews in English. Office workers seeking to enhance conversational Chinese chat for hours in Mandarin. Most common of all, college kids looking to raise their English proficiency test marks brush up their comprehension with hand-out materials prepared by the group leader.

There is one condition ― no Korean inside the cafe.

Since opening in 2008, ifriends has blossomed into a cafe, a banquet hall, a classroom and most of all, a foreign language immersion center.

The goal, says co-owner Sohn Ju-youn, is to offer a comfortable place to chat in foreign languages.

“People feel uncomfortable practicing their English in other cafes when there are so many of us who want to speak English, Japanese, Chinese, Spanish, you name it, to get jobs and perform better at work,” the former office worker said.

“A lot of the first comers become regular members once they are placed into a particular group. They come here to talk, so people socialize easily and hang out for drinks afterwards.”

Crowds help themselves to unlimited amounts of coffee and tea from an espresso bar for an entrance fee of 5,000 won ($4.40). The cafe does not charge customers for organizing study groups or conversational sessions where a native speaker is hired to lead the group.

“On Wednesdays we have a job hunting group where members share recruitment information and practice answering interview questions in English. It feels great when some of them come back for a party after they get an offer,” Sohn said.

The study groups, running seven days a week, ranges from TOEIC-speaking, translation sessions to advanced Japanese. The cafe gives small incentives to leaders who volunteer to head their group.

Moon Hyung-chul, 27, says his participation in the job hunting group for the past three months helped him to ace a corporate job interview where he received an offer.

“I did my undergraduate (degree) at an Australian university so I was quite confident with English to start with. But discussing current affairs with people like me on a regular basis polished my speaking,” Moon said. ◦

Sunday, December 05, 2010

The Miracle Is Over in South Korea. Now What?

South Korea boomed by turning a rural economy into an industrial power. To keep growing, it's going to have to make some fundamental—and difficult—changes


As it welcomes the leaders of the 20 richest nations this week, South Korea is coming to grips with an uncomfortable truth: The stunningly successful economic strategy that put it in position to host such a meeting is nearing the end of its useful life. And replacing it won't be easy.

Fifty years ago, seemingly trapped in poverty and hunger, South Korea began a rapid rise into affluence while also staring down its neighbor, North Korea, which had invaded it just 10 years earlier and continues to threaten it today. South Korea is now the 15th-biggest economy in the world, home of globally recognized companies like Samsung and Hyundai and a model for developing nations.

But the economic strategy that worked so well for so long has run its course. South Korea has essentially reached the level of wealth that it can attain by relying on exports to turn a rural economy into an industrial one. More of its economic output—43%—comes from exporting goods than in any other advanced nation.

"The country is at an inflection point," South Korean Finance Minister Yoon Jeung-hyun said in a speech in July. "Apparently, there is a limit for export industries to create new jobs and added value."

The question South Korea faces now is both simple and difficult: Can it make the necessary changes—economic, political and cultural—that will let it continue its upward path?

To keep growing, economists here and abroad believe, the country will have to make fundamental changes to its hierarchical, male-dominated society—not only bringing more women into the workplace, but also encouraging innovation and entrepreneurship, promoting by merit rather than seniority and opening the door to immigrants.

It will have to reduce the government's pervasive involvement in the economy, a vestige of a time when powerful presidents and cabinet ministers made hard choices about what to do with scarce capital. And it will have to loosen the country's adherence to Confucian-based hierarchies, following the path taken by such neighbors as Japan, China, Hong Kong and Singapore.

In an interview on Friday, South Korean President Lee Myung-bak described the situation in broad terms. "There is a lot of work to do in reforming many of the social institutions or the norms and the practices and traditions we've had in this country for many, many years," Mr. Lee said. "Some of them have been an obstacle to us becoming a more advanced country. There is a need now for us to try to change."

How South Korea confronts its challenges will be watched by dozens of poorer countries that have emulated the country's successful export-led development model, and by middle-income countries, including Taiwan, Saudi Arabia, Israel and Portugal, which are also hitting plateaus in growth and future potential.

Rise and Stall
South Korea's fast rise began in the 1960s under military dictator Park Chung-hee, who directed scarce capital and resources into many of the same industries that made Japan a powerhouse—textiles, steel, autos and electronics. South Koreans rebelled against authoritarian rule in the 1980s and established a constitutional democracy in 1987, but the economy continued to grow rapidly.

South Korea's per-capita income reached $20,000 in 2007, and while the Asian financial crisis in 1997 and 1998 dealt a blow to the country's traditions of lifetime employment and forced its companies to focus more on profits than growth for growth's sake, the disruption to the country's upward trajectory was brief.

Under the surface of that rising prosperity, however, the seeds of trouble were starting to grow.

South Korea's economic growth averaged 4.3% a year over the past decade, down from 6.2% in the 1990s. The country this year will grow around 6%, better than most advanced countries, but that's coming after two years of marginal performance. Economists' forecasts for next year range from 3% to 4.5%.

What's more, the country's growth potential has dropped further in the past 15 years than any other developed country, according to the South Korea Chamber of Commerce and Industry. Its recent study showed South Korea's growth potential—the maximum possible output when all production factors like labor and capital are used—is now about 4% annually and will likely shrink to between 2% and 3% in the next 10 years.

All this is happening in South Korea at a much lower income level than when it happened in Japan, whose development model, laws and culture South Korea mirrors to a great degree. In the late 1980s, when Japan's growth potential fell to 3% to 4%, its per-capita income exceeded $30,000. South Korea's now hovers around $20,000.

Fewer People, More Skills
Part of the reason for the economic stall is demographic: The country simply doesn't have enough people to drive into jobs to fuel growth. At just 1.15 babies per woman, South Korea's birthrate is the lowest of all developed countries. The number of people in the 25-49 age group has already peaked, and around 2017 to 2019 the overall working-age population will begin to contract.

In addition, South Koreans have reached a point where so many people have become educated that fewer apply for lower-paid, lower-skilled jobs. That's left the nation's farms and manufacturers scrambling for labor, at the same time many college graduates spend their 20s waiting for opportunities in large companies and the government.

Park Ju-eun, a student at Hongik University in Seoul, decided to delay graduation for a year after encountering a difficult job market. "These days, no one graduates as scheduled," she says. "Students put off graduation to have a better chance to get hired."

Ms. Park, who is 24 years old and a management major, applied for jobs at 15 companies, but she wasn't invited to interview at any. She'll get her degree next year and, if she still can't get a job, will study foreign languages and take certification tests to build up her credentials.

The model now for South Korea, economists say, should be countries in Europe and North America that developed robust service industries, which absorb highly skilled workers and complement existing manufacturing competence, and embrace more diverse working environments that stimulate invention and creativity.

To get there, South Korea will need to reshape its economy to be driven from the bottom up, rather than the top down, and confront the cultural traditions that are creating work barriers for women and immigrants.

"Korea has to decide whether it will reconstitute itself and stay in the limelight or get ready for a Japan-style sunset," says Jasper Kim, a law professor at Ewha University in Seoul.

A Heavy Hand
No. 1 on the government's to-do list: Stop micromanaging the economy. Such involvement made sense in a country rising from nothing with limited capital and a low level of education. But South Korea is no longer such a place, and the government's hand is widely seen as stifling competition and growth.

Regulations, for instance, say that a company that brews beer in South Korea must be able to produce at least 3.8 million bottles a year, preventing start-up companies from trying to take on the country's two established beer makers. In another area, after an outcry last year over the salaries paid to workers at Korea's privately owned stock exchange, the government took it over and slashed pay.

Government officials acknowledge the problem. But they haven't been able to fix it.

In 2007, South Korea's president, Mr. Lee, campaigned on a promise of economic growth he pitched as the "747" plan—7% annual growth, $40,000 per capita income and the world's seventh-largest economy by 2018. A key element: government downsizing.

Mr. Lee initially set out to privatize about 40 of the country's 400 or so government corporations in hopes of spurring profit-motivated work. By early this year, officials had moved on just one sale—a minority stake in the company that runs the international airport in suburban Seoul. Then, in September, they even stopped that sale in response to political critics.

A similar resistance has arisen when it comes to the government's monopoly of the rates and sale of television advertising. Two years ago, the nation's constitutional court ordered an end to that control, saying it was an illegal monopoly.

The result was that even more government agencies jumped in, wanting to sell advertising or have the power to decide who will. Meanwhile, with government-set TV rates acting as a ceiling to most other advertising, South Korea's media industry accounts for less than 1% of gross domestic product, compared with more than 2% in Japan and 3% in the U.S.

Most visibly, capital-intensive construction projects remain a major tool of influence for South Korea's political leaders, a force that sways both the costs of private development and the land available for projects. Mr. Lee's own megaproject is a $14 billion dredging of four rivers.

This summer, Mr. Lee and his deputies tried to change plans for a $20 billion city that lawmakers had designated as a new home for half of the national government, arguing that the project should be driven by the needs of the private sector. But he lost the battle in parliament. Mr. Lee's second-in-command, Prime Minister Chung Un-chan, an economist who questioned the viability of a government-centric city, resigned over the matter in July. "I felt guilty for failing to prevent the expected waste," he said.

Part of the reason the government's heavy-handed role in the economy is accepted is because it's in line with Korean society's Confucian-rooted belief in the power of hierarchies. That same belief spills over to everyday work. South Koreans routinely defer to people older than themselves, a habit that preserves order but chills interaction and suppresses new ideas.

And the hierarchical tradition is further complicated by the power it assigns to men over women. Until the 1990s, Korean textbooks preached that women should stay at home. Even now, women are routinely encouraged to quit work when they become pregnant. And it was only this April that a judge for the first time held a South Korean company liable in a sexual-harassment case involving a male boss and female subordinate.

Today, only 53% of Korean women work, below the 57% average of all developed countries, a problem that will loom even larger when the labor force starts to contract later in the decade. The average salary for a South Korean woman is about $16,931, just over half the $32,668 average for men, the biggest wage gap among developed countries.

And for the women who do work, opportunities for advancement are stifled by the outsize role that a late-night, male-centric drinking culture plays in business life. In its most extreme form, after-hours socializing takes place in so-called room salons where young female hostesses pour drinks and converse with groups of men, an atmosphere that excludes their female colleagues from opportunities for business deals and networking.

The Unwelcome Mat
The fastest spur to growth would be to welcome more foreign workers and immigrants to the country. South Korea has 557,000 foreign workers, about 2% of its work force of 23 million. That's higher than in Japan, where the number is less than 1%, but well below the 10% of the U.S.

But foreigners can stay only five years at Korean-owned companies, according to work laws. Permanent immigration is extremely rare, though it has grown in recent years for a special category of immigrant: women from other countries, mainly in southeast Asia, who marry the single farmers left in rural areas after young Korean women moved to cities.

Min San-gi, who owns a car-parts company in the city of Suwon, is limited to just 10 foreigners in his factory of approximately 50. His foreign workers will stay the five years with him, but his Korean workers tend to go quickly, sometimes after just a few months or a year. Despite relatively low pay, Mr. Min treats his foreign workers well, and even won an award from a Catholic charity group for his work with immigrants.

Meanwhile, as with other small employers, Mr. Min's company experiences a high turnover rate among his Korean workers who, as part of a dwindling pool willing to do factory work, are seeing more opportunities.

As a result, Mr. Min has essentially allowed his company's growth to be centered elsewhere: Three years ago, he opened a larger factory in Vietnam, where he's had no problems finding a stable work force. "I feel it's a kind of shame to have left Korea," he says.

What It Will Take
Confronting the problems today is more difficult than mustering the will to rise up from poverty was in the 1960s, says Huh Chan-guk, an economics professor at Chungnam University in Daejeon. "We don't have that consistent meeting of the minds with staying power compared to the magnitude of the problems," Dr. Huh says.

For economists specializing in South Korea, the country's growth dilemma has become grist for theorizing; several investment banks recently issued formulas for jump-starting its medium-term and long-term growth.

A study by Danny Leipziger, a professor at George Washington University and a former World Bank vice president, showed that, with enough productivity improvements and greater employment of women and the elderly, South Korea could reach even the 7% growth target Mr. Lee touted in his presidential campaign.

"The future isn't written in stone," Dr. Leipziger says. ◦

Wednesday, December 01, 2010

Book review: The New Korea

When a country can will and work itself out of post-war poverty to become the world’s 15th largest economy, re-invent its closed-door chaebols (conglomerates) to breed competitive multi-national corporations and have its national car brand go from laughing stock to win the coveted 2009 “North American Car of the Year” award, it is time to sit up and notice.

In their book, The New Korea: An Inside Look at South Korea’s Economic Rise, former journalists Myung Oak Kim and Sam Jaffe examined the nuts and bolts of a nation way advanced in technology adoption, strong in its determination to succeed, yet also fiercely nationalistic and wary of Western influences.

What has transpired is a five-part look into the country’s history, economics, trade, industries, society and the parts they play in Korea’s future. Crisp summaries of broad trends are interjected with anecdotal accounts of historical trail-blazers, life stories of ordinary Koreans and its immigrant population, which adds an interesting and personal touch to what might otherwise have been a staid analysis of the global economic powerhouse.

New Koreagives a broad understanding of what the authors call a “prosperous yet often perplexing nation”, exploring questions like: Can Korea compete with low-wage countries like China and India? Will it go on the path of safe, zero economic growth like Japan? Will its closed social structures and government involvement in every technological development hamper its progress towards dynamic growth?

Sharing a painful history

The key to a country’s present is to understand its past. “History is as much a part of the present as it was of the past,” wrote the husband and wife team of Jaffe and Myung. “History, to a Korean, is not what happened. It is who you are, and what you do, why you do it.”

A large part of who Koreans are is defined by a “pain sharing” spirit, which, despite its negative feel, has proven to be an asset. This collective mindset led the people to donate their gold to help pay foreign debt in the 1997 Asian Financial Crisis, and also, to respond to the call for wage freezes, concessions and job-sharing measures in the recent global economic downturn of 2008. They would even roll up their sleeves and turn up in droves to clear up an oil spill voluntarily.

On the other hand, two thousand years of hostilities between the former Silla, Baekje and Goguryeo kingdoms that made up the Korean peninsula has resulted in social prejudice that still exist amongst people in these provinces today. More recently, the Korean War (1950-1953) which killed millions and left many more displaced, has created the deep rift between the capitalist South and the communist North that shows no signs of ending. Germany, the most prominent divided country as a result of the Cold War, in contrast, is celebrating its 20th anniversary of reunification this year.

This divide hovers overhead the Korean peninsula like a dark cloud till today. According to the authors, “All of them have scars that they have passed on to their children and grandchildren.” However, if there is something that the North and South have in common, it is pride in their history of self-reliance that has come about following repeated invasions from the Chinese, Japanese and Mongolian forces throughout history – attempts that can perhaps explain why the country resists opening itself up to foreign influences and elements.

Uzbek bar girls, Nigerian dockworkers

But the homogenous face of Korean society is changing. The authors observe that while foreigners used to come to Korea as “tourists or conquerors”, they are now coming in droves from around the world, seeking job opportunities. Foreign-born residents now number more than one million and account for more than 2% of the country’s population. They range from the Western English teachers to Chinese- and Japanese-Koreans who come for marriage or jobs. Then there are the labourers like “Filipino factory workers, Uzbek bar girls and Nigerian dockworkers”, that work in “3D jobs” or work perceived by the locals to be “dirty, dangerous and demeaning”.

The foreign influx is an upward trend, said the authors. “The flow of foreigners into the country is expected to increase as the country ages and the native workforce shrinks.” Even the chaebols – life-long employers (just like companies in Japan) – are looking outside the country for their top executives. LG Electronics, for example, has recruited several into its top executive ranks; Samsung, the largest chaebol, also went on a “foreign hiring spree” for its executives in 2008.

Gender imbalance adds to the equation. Korean men look to Vietnam and China to find brides as many young women move from farms to cities for a better life; and in the cities, fewer women are marrying.

While Korea seems to be adopting a more open attitude these days, practical inconveniences for the foreigner still abounds. Foreigners in Korea are issued identity cards with five or six digit numbers, whereas locals hold cards with 13 digits. As a result, foreigners’ cards cannot be used for some online transactions.

Foreigners also have to wait at least three months to open a bank account and then another three to use an Automated Teller Machine. Even mobile phones are restricted to one per foreigner. One telephone company even goes as far as to not allow foreigners to sign up for its mobile phone service. “So, while the government advocates a welcoming attitude towards foreigners, more work needs to be done to make that attitude reach down to the level of everyday matters,” the authors wrote.

Steel mills and Ponies

The Korean story is incomplete without remarkable accounts of how its domestic enterprises had been built as well as the feats of engineering and infrastructural projects. When General Park Chung Hee was elected Korea’s president in 1963, he had a dream: Build the steel industry then the road system, then the cars. Naysayers back then said Korea would never be more than a farming economy. They were, of course, proven wrong – many times over.

Park Tae-Joon, an army contemporary of President Park, who had no experience or expertise in steelmaking, took on the challenge and built Korea’s first steel-producing company. In 1973, the first steel sheets rolled out from the furnaces of the Pohang Iron and Steel Company (POSCO). Park and his employees “learned it all from others, while making many visits to Japanese steel plants, which at that time were considered among the world’s best”. By 1992, its factories produced almost 21 million tonnes of crude steel yearly. The company was listed on the New York Stock Exchange two years later. “The company’s plants are considered among the most efficient and modern in the world and can produce steel at US$100 less per tonne than the largest US steel firms,” the authors noted.

Next was the Kyungbu Expressway that runs from Busan to Seoul. Farmer-turned-auto mechanic Chung Ju-Yung’s construction company, Hyundai, won the government contract at a ridiculously low bid of US$649 million (others placed bids as high as US$1.4 billion). More amazingly, Hyundai finished building the tunnel and Highway 1 within two years and four months. And so, the dream was soon to be complete.

Wanting to move beyond being a subcontractor for American car brands, Chung and President Park set their sights on building a real Korean car company. Chung took the hard route, building the company from scratch – with designers from Italy, and a British car executive overseeing the factory’s construction. The “Pony”, became the first Hyundai car to roll off the assembly line in 1976, and this compact family vehicle soon became “the most common car on the Kyungbu Expressway”.

From then on, there was no stopping Chung. He exported the Pony to 30 countries simultaneously (again defying recommendations by his advisers) and launched a “Cars That Make Sense” marketing campaign in North America in 1986. By the following year, some 300,000 cars had been sold in the US, Canada and Mexico. In 2009, Hyundai won the coveted North American Car of the Year award with its Hyundai Genesis, a relative cheap US$40,000 entrant in the lucrative luxury car market.

Soon after, other brand success stories followed. LG, the former Lucky-Goldstar, transformed itself from a manufacturer of unknown cheap commodity goods into “one of the world’s most valuable brands”, surpassing, in 2008, Sony Ericsson (a Japan-Swedish joint venture) as the fourth-largest mobile phone maker in the world. Samsung, a mere “parts supplier” in the electronics industry until as recent as the 1980s, has become the South Korean giant in areas like mobile phones, consumer electronics and semiconductors. The Samsung Group, which is also in construction, ship-building and other key industries, accounts for around 20% of the country’s exports.

Korea, declared Myung and Jaffe, is now recognised as the industrial giant that it had “somehow willed itself to become”, earning its place as one of the four Asian economic “tigers” alongside Hong Kong, Taiwan and Singapore.

Towards Korea 3.0

As the country move towards a new era from its Asian tiger years, some questions are raised: will it continue to stay hungry for progress, wean itself off its high dependence on fossil fuels, improve on its weak environmental record, open up its closed social systems and navigate the choppy waters of volatile relations with the North?

If it can, then it is the authors’ view that the nation can stand alongside the most advanced countries in the world. And rightly so, as it has repeatedly proven that it can compete with the best and the brightest through “sheer will power, hard work, and an emphasis on education and setting ambitious goals.”

What remains is for the former Hermit Kingdom to crawl out of its shell and share its story more effectively with outsiders. “The tools that made Korea 2.0 successful will not necessarily work for Korea 3.0,” Myung and Jaffe concluded. “A centrally planned economy is not the answer to future growth, and neither is a rigid networking and communication system. It is time to shed the Hermit Kingdom label once and for all, and to show the world all that Korea has to offer.” ◦