BusinessWeek contributing writer and executive director of the Drucker Institute at Claremont Graduate University, Rick Wartzman, discusses Korea’s underdeveloped services industry.
Rick says that Korea has a strong manufacturing base, but to get closer to the first tier of advanced countries and to increase their productivity statistics, it needs a stronger service sector. However, Rick adds an interesting caveat:
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 advocating an improved services sector for Korea, Rick is not alone. The Science and Technology Policy Institute (STEPI), a government think tank, apparently agrees and so does the OECD.
Given Korea’s weakness in the services sector, the government will apparently devote $260M in R&D to see how they can improve it. According to a KT article:
“The most standout cases of services R&D are found in Apple and Google,” a ministry spokesman said. “Apple first released the iPod, then developed the iTunes service to manage contents and derivative sales. Google pushed its boundary from a Web search engine to produce cell phones using the Android platform it developed.”
Interesting. However, in the U.S. the Apples and Googles of the world are not created by money and mandates from the government. They are created by giving entrepreneurial people the freedom to be creative outside of a huge company setting, allowing key employees to share in the riches created via stock options and a developed venture capital industry. Korea doesn’t really have this kind of construct. The Korean government could have saved some money and just given me a modest fraction of the $260M and I would have told them that.
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“Contents.” This piece of Konglish has caused me untold suffering over the years.
Blockquote fail.
Bingo!
Blockquote elves hard at work KrZ.
This is a worthy topic to address, more so for any Korean interested in improving Korea.
An especially distinguished Korean woman I spoke to here once made the observation that Koreans are good at starting things and doing things but not in finishing and filling out the fine details. There is tremendous potential in Korea though even the current president and his team are sometimes stuck on making “cogs” (pouring concrete) and not on developing the services industry. Old habits are difficult to get rid of.
Despite this retro mindset, I can see that LMB was very much justified in his criticism of local government and their wasteful, reckless spending on buildings that will never be used but cost an arm-and-a-leg to build and maintain. I got another good look at several in a city south of Seoul, during the last two days; bridges from modern steel and glass buildings that went no where. Shiny, steel and glass government buildings that were as empty as a haunted house, taking up large expanses of land.
Money gone wild, never to return . . .
Actually, there are Korean IT start-ups, founders motivated by equity, and venture capital firms (either foreign or otherwise) who invest in them, not to mention an entire IT park set up in Silicon Valley to help Korean IT companies enter the US market and/or partner with companies from the Valley. I haven’t kept track, but I don’t think they had much success with the incubator approach as of the early 2000s.
You can have venture capital, start-ups with stock options, and try to replicate the Silicon Valley Way as much as you want, but so far, very few regions have succeeded so this is not a hurdle that S. Korea faces alone. Every country these days wants to be encourage creative start-ups and jump start a ‘knowledge-based economy’. Hell, this buzz word is the mantra of pencil-touting bureaucrats in the halls of Brussels who have made this their mission statement for the next 10 year plan. Never mind that these gnomes have never worked for a start-up in their lives, much less started something new and innovative on their own.
Look at the UK, now there’s a service based economy in a complete mess.
Korea should do well not to follow these “serviced” based economies who are basically living off of the reputation that their parent’s generations created.
Korea should be looking at economies like Hong Kong, Singapore, etc
There’s a big reason why the West is in such a mess and deeply in debt. Generating wealth out of paper and debt backed up by nothing other than their sham credit ratings and reputation, are not the way to go.
Follow these guys’ advice and you’ll end up ruined.
“”are we even sure that the expansion of the financial system was doing anything productive at all?”
Good god no. I dearly hope with all my heart that the threat of “dynamic korea” will prevent korean financiers from turning themselves into the masters of universal fuckups.
They should treat their IT people better though. Hell yes.
“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.”
Isn’t this a little dumb to be mentioning in an article about korea? Let me guess, if you don’t mind. The reason why more koreans aren’t working in services is because of structural limits to its economy, not because korea has too many unschooled lazy people.
Amen Greg mankiw, Amen, Mr. Right Wing economist! I have seen the light!!
http://gregmankiw.blogspot.com/
When “service economy” is mentioned, I think of workers at McDonalds, wait-staff at restaurants, and customer phone support, not Google and Apple.
Service economy does not produce wealth. Wealth is made only by the production of real tangible goods, not intangible “services”.
In America, entire towns and communities prospered because of the local steel plant or car factory. Of course, these are largely a thing of the past because when the local plant shut down, the communities became part of the growing Rust Belt. I’ve never heard of a community prospering because of the local Walmart.
I’m not sure but where should one classify occupations such as translators?
The real problem I keep running into here is the lack of quality management. I have so many anecdotes about so many different types of business here that it would take some compiling on my part to list them, not to mention how Korean-style corporate politics or government-regulated politics routinely screws up good management decisions from being made. This is why my friends always keep their eyes open for decent people and try to work with them only.
@ NetizenKim
When the globalist vultures start saying that Korea “needs” a larger service sector, it means they think that Korea is ready, or close to ready, for the harvest.
With a developed manufacturing base and low fertility/population growth, they’ll come in to feed on the productive capacity and shove more and more people into the services sector. A larger services sector will mean more women working and lower wages, both of which will lower fertility even more. Then they’ll say that Korea “needs” immigration and start importing people en masse, lowering wages further, enriching themselves, destroying national unity and thus preventing the formation of political structures organized along national and cultural lines, depriving the people of the capacity to leverage national and cultural ties into meaningfully large networks of opposition. The financialization of the economy that proceeds during this whole process will be a natural by-product of enlargening the services sector, as well as the crucial tool of the process. It will be the conduit through which they leverage control. It will maintain and even expand consumption standards that conceal the falling wages and thus distract the populace. It will fuel the bubbles through which they enrich themselves and centralize assets. And perhaps most importantly and devastatingly, it will be the means by which they subvert the native elites.
Hey Mr. Jokbal,
What do you propose we do about the scores of korean men who can’t find korean wives either because they live in the boondocks or don’t have that much money 0r cuz more and more women just don’t want to deal with the unhappiness of raising a child?
Encourage them to embrace their inner homosexual.
#17 dogbertt, you made my day!
How’s that? According to your previous comments, the local Korean elite already (voluntarily) has been incorporated into the freischwebende international capitalist class, all the privileges and perks of which they thoroughly enjoy – while ensuring that the worker bees of Korean society whom they have encapsulated in a protectionist cocoon provide the means for that elite to sustain its prerogatives while not being able to share in them in any meaningful way.
Long ago I use to think that having a lot of manufacturing was a key to an economy, but it’s not. A developed services industry provides growth and sustenance to a more mature economy.
A lot of services are in fact low end like food services, factory maintenance, etc. However, so are some manufacturing services. For example, textile is a low-end manufacturing service. Assembling consumer goods is another. There are higher end manufacturing also such as industrial construction, industrial assembly, capital goods assembly, aerospace, etc. But, at the end of the day in manufacturing, there are not a lot of chances to have a six figure salary, thus relying only on manufacturing to raise GDP and particularly per capita income has a lot of limitations.
If you look at the highest non-resource rich per capita income countries such as Luxembourg, Singapore, Switzerland and Liechtenstein these are service based economies. Service based economies provide consistently higher per capita GDPs.
What are some service based companies Korea should look to have? To get to the next step in advanced economy development I believe Korea needs a few large, multinational service companies similar to the following:
1) Financial Services:
– Goldman Sachs, United States
– Deutsche Bank, Germany
– HSBC, Hong Kong
2) Media Services
– Thomson Reuters, Canada
– Time/Warner, United States
3) Advertising
– Dentsu Incorporated, Japan
– WPP plc, UK
3) Software Development
– Oracle Corporation, United States
– SAP AG, Germany
– Computer Associates, Inc., United States
4) Technology & Systems Integration
– Google, Inc., United States
– IBM, United States
4) Industrial Services
– SGS, Switzerland
– Intertek, UK
Korea currently has no multinational companies similar (in size and stature) to the aforementioned.
Where did I say that and what exactly did I say?
I suspect we have different conceptions of what subversion would actually be and entail.
Why did I know you weren’t going to own that?
@15 Is everybody still plotting against and out to prey on the righteous Korean-blood people again? When will those vampires leave those naive, morally superior people alone? Anyway, look on the bright side–once all your predictions come true, you’ll have one more reason to justify your 한.
@20 Wangkon, remind me what kind of financial services Goldman Sachs has provided to the American or any economy of late.
Point out where I said that. I don’t remember saying something like that. Perhaps I did, I don’t know.
Googling my handle and “elite” doesn’t bring anything like that up. It does bring up stuff that I’ve said like the following that is quite the opposite of what you’re suggesting:
http://www.rjkoehler.com/2010/01/28/la-koreatown-a-state-within-a-failed-state/
“I agree with this. There are very powerful political and economic interests at work in the US when it comes to immigration policy. Thankfully our elite is not corrupted in this way but I think we are entering a time when we will be more vulnerable than ever, especially with all the low birthrate alarmism.”
HSBC’s CEO may have moved to Hong Kong last year, but it’s still an English bank.
“1) Financial Services:
– Goldman Sachs, United States”
Man… I just coughed and spit out my saliva, after reading this. Goldman Sachs? You got to be kidding me. They’re one of the biggest crooks in the planet. They’re only in business because the US government backs them.
When they say “serviced based economy”, they really mean a pyramid Ponzi scheme. LOL.
I don’t know if you’re so ignorant or just so completely brainwashed that you’re unable to see that this isn’t anything unique to Korea and its future but that these same mechanics have been at work in the massive demographic changes in your nations. If these events do indeed play out it will justify a lot more than han. It will justify a coup, revolt, revolution, etc.
For the sake of clarity, though, I’ll add that you only said that the Korean elite is part of the international
jet trashcapitalist class; you’ve always declined to recognize the fact of their exploitation of the rest of Korea to sustain their ability to pay their dues.Sperwer,
Well, I wasn’t trying to own anything. However, I am hoping there is an outside chance that someone in Korea who has power to influence things may be reading this thread. Korea has been following the Japanese model of import substitution for too long. It needs to decouple from this model and change because the Japanese model has run its course and doesn’t have much more of a future for Korea, unless it wants to be lead to a developmental dead end.
dogbertt,
Yes, true. HSBC moved their HQ in 1992 from HK to London after the transfer of the colony back to the PRC. It started and was built up in HK for a good part of its history though.
cmm,
Korea very much wants to host a top notch financial institution. That’s why Korea Development Bank tried so hard to buy Lehman Brothers in 2008. If CEO Lehman Dick Fuld had reasonable price expectations (and didn’t think that then Treasury Secretary Henry Paulson “had his back”), the history of the Great Recession might have been a little different.
WangKon:
That wasn’t aimed at you, but Minjujingo
I happen to agree with your position re: Korea need to deep six the import substitution (and the related protectionist protected export driven) model of development
Well I agree that the Korean elite exploits the rest of Korea. The iron law of oligarchy applies everywhere. It’s structurally endemic to civilization, which is after all basically human husbandry.
The Apples and Googles of the world may not be created by money and mandates from the government but computers and the internet sure as hell were.
This particular article got me thinking:
http://www.koreatimes.co.kr/www/news/nation/2010/03/113_62611.html
I think the Koreans that have the power to change policy know definitely understand that there is a big gap between the Chaebol and mid sized companies that strong service companies will probably emerge from. However, instead of improving the market conditions that these mid sized businesses operate in so that the best will emerge on their own via a more efficient private sector, it appears that Koreans will stick to what they know best which is to have government nurture them, just like how they did in the 70′s and 80′s with the Chaebol. Looks like the Koreas are sticking to what they know rather than try something different. I’m not saying one is better than the other. I’m just saying that’s what it looks like Koreans are doing. Who knows if it will work?
But, if I was a betting man. I’d say that having government choose which of these 300 medium sized businesses should receive their attention, etc. probably won’t work and it will take a lot of time and money for them to figure it out in the end. I mean, hell… think of the possibilities of potential corruption here. It can easily turn into a policy of not so much directing government tax breaks and cash to deserving mid sized businesses but one of moving it to mid sized companies that have the most influence with National Assembly members, regional ties, etc. The possibility of abuse is, at least on the surface of it, high. Sometimes countries learn more from their mistakes than their successes… unfortunately.
Well, looks like the experts are continuing to agree that a decisive move to services has to be a part of Korea’s growth future:
http://joongangdaily.joins.com/article/view.asp?aid=2920231
Slice:
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