In principle, under Korea’s civil-law system all that is not expressly authorized by law is forbidden — the so-called “positive list” principle. It puts everyone in the position of a supplicant seeking license or permission to do anything. By contrast, English common-law systems — especially the American — limit the power of the ruler by reserving to the people all powers not granted to the state. That which is not expressly forbidden is therefore implicitly authorized.

That principle is the keystone of modern, prosperous, free society. It’s also why the good English common-law systems (I’m not talking about Nigeria here) have much lower levels of official graft and corruption — there is less power reserved to officials who might be tempted to turn their licensing power into a money-maker.

i.e. - You can’t throw a party, accept all the gifts, tell your guests to go home without feeding them, and then expect guests to willingly come back for the next party.

The ROK has to look no further than just across the border at the DPRK to understand what it’s asking for - financial isolation. Does South Korea really want to be isolated from international finance ? It’s sure acting like it does.

There is a vast difference between the homegrown “economic miracles” during President Park’s rule and the desire for Korea to be a major financial hub. In the former, a strong spirit of nationalism helped fuel the determination and energy necessary to accomplish such miracles as a home-grown steel industry and heavy machine industry , and tool industry.

More importantly, Park’s strong and centralized rule swept aside dissent and made sure things happened, for better or worse.

However, in the case of striving to be a financial hub, quite different national traits are necessary to accomplish such a feat. Specifically, openness, transparency, and as such, a lack of xenophobic nationalism will be necessary for Korea to have a foundation and trust and fair treatment of foreigners and foreign capital in order to have a strong financial sector.

I applaud Korea for striving to move in this direction, but major societal, law, and governmental changes - far exceeding those during the Park era - will be necessary to accomplish such an audacious goal. Korea has yet to even begin in earnest to move in this direction and rather seems to be happy to move in the direction of driving foreign capital away from Korea:

“Through this (Lone Star) incident, the international community thinks Koreans believe that non-Koreans making money in Korea is like committing a crime, which drives away potential foreign investors.”

Cheers,
David

My thesis is that it’s no accident the English-speaking world produced the financial-services industry, and dominates it today. Yes, there are French, German, and Swiss financial-services giants, but as they globalized, those businesses have been inexorably drawn into — and become staffed by — the Anglosphere. Especially Deutsche Bank. That place is full of Americans and Englishmen now, but hardly any Germans.

By the way, St. Louis is also an example of an economy that has endured long-term, seemingly unstoppable, decline after a period of high growth and greatness. It was once America’s “second city” and had a very large number of Fortune 500 companies headquartered there. Why did St. Louis fail? Because nearly every decision the city fathers have made since 1850 has been wrong, wrong, wrong. Yet every one of those decisions “felt right” to them at the time, but around the time of the Great Depression all those mistakes starting coming home to roost. By the 1980s those Fortune 500s were all either clearing out of town or became acquired by more dynamic companies elsewhere. Manufacturing left too. From my perspective, Korea faces the same danger.

I’m not sure this is the place for this discussion, (maybe worthy of a separate post on your new blog?) but this is something that’s been nagging at me for a bit. I think we can all agree that reliable enforcement of laws, transparency, and minimal corruption are good things, but considering that it would be well nigh impossible to change an entrenched legal system overnight, why would you prescribe a change to a common law system or necessarily assume the superiority of English common law?

If we were talking about specific deficiencies in Korea’s legal system I would understand, but would you be making the same observation if you were in France, Germany, or Japan (the other mature world economies)? Or would they too have to go to the lengths of Dubai, which is groundbreaking and very impressive but difficult to imitate on a larger scale or at all? Sperwer posted a comment in a similar vein on the bar exam thread, and as someone who’s never been able to directly contrast and compare I was wondering why he felt that way. Perhaps it might be due to people posting here mostly being from common law jurisdictions and (subconsciously) displaying a hometown bias. Or maybe the dominance of American firms in international commerce and finance makes them favor a uniform set of Anglo-American “rules” as opposed to necessarily having a common law “system” in all countries but a clear distinction hasn’t been drawn between the two. If that’s the case, then there’s a continuing trend of “rules” convergence going on in the area of commercial law, which might pay off in the future as the kinks get worked out. If the common law system is clearly superior and desirable, however, then that suggests that no amount of enlightened legislation or judicial competence is going to make a civil law jurisdiction attractive to international financial institutions. I’m aware of the law and economics literature on common v. civil law, but let’s just say I’m not yet wholly convinced on that point and would appreciate from perspective “from the front lines” as it were.

By the way, a commercial law prof at SNU finished off his last semester’s classes by remarking that it had been convincingly proven that common law is superior to civil law and that the persons responsible for the research would likely one day receive Nobel prizes. (He continued on to emphasize the importance of the judiciary and hence the education they receive and the awareness they have of the international impact of their decisions.) Like I said, I don’t necessarily agree, but it was pretty shocking for a classroom full of Korean law students to hear. Another reason this issue piqued my interest.

Oh, and I’m also looking forward to your inevitable (I hope?) post on the introduction of the law school system in Korea

Anyways, I’d also say that “Anglosphere” does not have a monopoly of the higher levels of the banking industry as the size and success of Deutsche Bank (German), Bank Paribas (French) and UBS (Swiss) would attest. However, English common law and its protection and recognition of real property, incorporeal property and intellectiual property, does give financial insitutions the edge when spreading their wings. Also, English is the universal language in the financial world and American GAAP accounting standards are the preferred method of evaluating financial performance.

The financial-services industry is a creature of the Anglosphere — its “talent” generally speaks English as a native language, and its legal framework is based on the English common law. There’s a signal reason that Hong Kong and Singapore are financial-services hubs: They were British colonies, and have common-law legal systems and domestic supply of English-speaking personnel. You might notice both places have a reputation for law-and-order, transparent and reliable enforcement of laws, and a low level of graft. Plus neither Hong Kong nor Singapore abhors the entry of foreign businesses or foreign individuals. Where are the other global financial hubs? Oh yeah: New York and London.

Give ‘em an English common-law based legal system, enforce laws reliably, produce a steady supply of English-speaking support staff, let the foreigners in and then leave them the hell alone. Be happy to collect tax on their operations but keep your nose to yourself. That’s the recipe for a financial-services hub.

Korea cannot do this. Thus it cannot now be, and never shall become, a financial-services hub.

Yes, I agree that the government failed to carry out the hub plan. Their own actions undercut it. A botched job, but I was trying to say the whole thing should be understood in the Korean and Japanese tradition of benchmarking the best and striving for seemingly unattainable targets. Leading business administration professors argue that this trait is one reason for some of the startling successes they’ve had. Who would have imagined 20 or 30 years ago that Toyota would be annihilating Ford and GM, that world companies would be buying their chips from Samsung, etc?

I give them the nod for trying, comment that under a more competent Korean government it might have worked, and point out that that it while it is easy for us to laugh at ambitious plans, at least they have them and damned if one out of 5 or 10 (dunno) don’t actually happen. I wish my own government would do more of this kind of forward economic planning, frankly.

I think the examples are valid, to build a steel or shipbuilding industry where only farmland stood is equally (or arguably more) challenging and far-reaching than taking a financial industry from a domestic orientation to an international outlook.