≡ Menu

Korea repeating Japan’s mistakes?

So warns Daniel Altman in Foreign Policy (a piece mentioned in the Chosun Ilbo editorial linked below):

Korea is next in line to face these challenges. Like Japan’s economy and the keiretsu, Korea’s economy is dominated by a handful of chaebol — enormous conglomerates that cover many industries (excluding banks) and whose share of GDP, after climbing steadily for the past 10 years, may be higher than 75 percent. At the very moment that Korea needs dynamic small and medium-sized businesses to flourish, the private sector as a whole is becoming more dominated by lumbering oligopolies.

In addition to the chaebol’s dominance, Koreans should be worried about the state of their underlying economic institutions. Academics and think tanks rate South Korea’s level of economic freedom, the robustness of its property rights, and its protection of equity investors below those of Japan, Taiwan, and many other wealthy countries. Although the day-to-day processes of doing business may be relatively easy in Korea, its economic environment offers few advantages to a small contender pitted against much bigger players.

Other traditional gripes about the East Asian powerhouses also apply to Korea. Its business culture has Confucian roots, so seniority and personal networks can mean more than merit and written contracts. Its education system emphasizes memorization, instills a pressure to conform, and mainly prepares students to work as cogs in big corporate or government machines. Its creative class is underdeveloped by international standards, and its culture is reticent about new ideas and new people, though immigration has ticked upward thanks to the policies of former President Roh Moo-hyun.

It’s not all bad, Altman notes—Koreans work hard and love a good national project, their research facilities are productive, the education system gets results, and best off all, they’ve got Japan to provide a cautionary tale.

About the author: Just the administrator of this humble blog.

  • cm

    Yes, the sky is falling for Korea. I heard that for the last 20 years.

  • Arghaeri

    CM,
    I think I remember a Japanese friend make much the same sarky comment in the good old days before the sky fell…..

  • cm

    I didn’t even realize sky has fallen in Japan. Has it really?

  • Wedge

    Japan is still plugging away–their growth in the last few years is actually pretty good among first-world peers. However, their PR machine has been very good at making them look bad off since they got burned in the 80s.

  • madar

    Only if you consider a slow smoldering recession that has continued since the high flying days of the 1980′s and looks likely to do so as they continue keep their non-preforming “chaebols” afloat while Korea and China move to surpass them the sky falling. It all started with their way over inflated property bubble going into a slow 10 year long “burst”. Thank God nothing like that is happening here….. oh wait….

  • Wedge

    Madar: Thanks for proving my point. If we all feel sorry for them, we won’t erect protectionist barriers and we’ll forgive them theirs.

  • Anonymous_Joe

    #3, about 20 years ago. I remember late ’89 or early ’90 the Nikkei Dow hit about 39,000. It’s somewhere around 8,800. I don’t know whether Japan reset the numbers, but it has been about that for some time.

    I remember a lesson a self-made investor taught (not relating to Japan) me years ago: “you can’t have a major market revaluation like that without all other markets following suit.” I believe those were his exact words.

  • http://www.xanga.com/wangkon936 WangKon936

    Contrarian viewpoint that Korea may avoid Japan’s mistakes:

    http://www.rjkoehler.com/2009/10/01/per-goldman-sachs-unified-korean-economy-can-be-bigger-than-japans/

    However, could Korea fall into a Japanese style abyss? It’s certainly possible, but too early to tell.

  • PeterDownUnder

    I believe as long as strict border controls are maintained Korean unification shouldn’t be SOOO damaging for SK.

    Amongst Koreans we always said Japan is 10 years in to the future compared to us socially and economically and thus we have a clear role model and benchmark to observe.

    Countries like Japan/US/EU who have reached a stage of so called post-modernism needs to show the world the next stage of civilisation like in the game “civilisation”.

  • yuna

    #8
    Speaking of Goldman,
    Buhbye!

  • untold

    Koreas development owes very little to the free market model. So they had better hurry up and become more like the US. Is that a fair summary of the advice on offer? I particularly like the emphasis on economic freedom, property rights and protection of equity investors. “Nice economy you’ve got there. It would be a shame if anything happened to it.”

  • slim

    This strikes me as a smarter piece on the same theme by somebody who actually lives in Korea:

    http://thediplomat.com/2012/11/16/apple-samsung-and-s-koreas-growing-pains/2/?all=true

  • yuna

    #12 Sounds like a tarted-up disgruntled English teacher’s opinion. A lot of the things he says are true, but I agree 10 times more with the commenter Simon after that article, that it’s hard to strip the Apple vs Samsung down to a Korean copy culture.

    As I have said many times, there are different innovations, and real substance and the mechanical/technological part I would say the Korean companies are very much top of the game, it’s not just about the rounded edges and i-icons.

    Also I object to how the writer describes how Samsung only just jumped in to the smartphone market after their flip phones with lights. Apple did not invent the Smartphone. Samsung did so very well with their phones prior to the smartphone era in Europe and the U.S. which has led them to be in the top position to take the brunt of Apple’s monopolizing in the first place. If they had not built up their brand and consumer trust no way the Galaxy series would have taken off like it did. Even former top spot holders like Nokia or Sony-Ericsson or Motorola have momentarily fallen behind in the smartphone game, and if you see what they bring out now, I don’t see it very different from Galaxy/iPhones. It’s only so much of different configuration is possible with a Smartphone – what is it – it’s a small laptop in the end – I still think Apple has suffered more of its previous image as the cool guy by showing the uncool side, by going after Samsung only.

  • slim

    I see a resume with an Ohio State PhD in polsci and scores of publications and not a whiff of ESL.

    Does your PhD have “Hello Kitty” on it, yuna?

  • yuna

    Does your PhD have “Hello Kitty” on it, yuna?

    Why, Slim, how did you know?

    Actually I don’t like Hello Kitty. I like other Sanryo characters but Hello Kitty I cannot stand. She’s so bland, like Mickey Mouse.

    I didn’t mean to imply that he was actually an English teacher.

  • yuna

    Having said that, I do know that a lot of academic jobs for English speakers in Korean universities is often that of a glorified English teacher’s.

  • http://www.xanga.com/wangkon936 WangKon936

    slim,

    It’s essentially an economics article written by an international relations professor who doesn’t have a very extensive publications history (or even instructional history) on economics or political economy or business. It sounds nice for people who want to believe a certain thing, but it’s not expert testimony. It’s similar to what James Fallows or Chalmers A. Johnson says when they use to praise the Japanese economic model. They are smart people and good writers, but seriously? They didn’t know what the hell they were talking about.

    I have other reasons why I don’t like Kelly’s article, but I’ll write it directly in the article’s comment section and provide a copy here.

  • http://pawikoreapics.blogspot.com/ pawikirogii 石鵝

    japan copied the transistor and made it better. copying often leads to innovation. apple cant win in the showroom so they try to win in the courtroom. pathetic.

  • CactusMcHarris

    Pawi,

    I appreciate the effort you put into your latest avatar, but I don’t think Gerry goes for the Noh look.

  • ecw

    Korea should probably strive to maintain its manufacturing. Post-industrial service economies are increasingly dominated by low-wage, low-tech service jobs such as food service, hair dressing, etc. and by government spending and welfare. The handful of service jobs such as in law that are still able to provide decent incomes are relatively few in number, are old-fashioned services based on rent-seeking, and can’t serve as the foundation of an economy. And the same arguments used against manufacturing – such as globalization and outsourcing eroding manufacturing jobs – also apply to the few decent high-tech services such as programming. Whether or not a manufacturer does well or is innovative, services that interface more directly with consumers such as marketing and design will play a greater role in shaping consumer perceptions. That shouldn’t be reason to abandon manufacturing.

  • sumo294

    Japan’s economy is not plugging along it is in deflationary spiral.
    Only a Cuban from the so called most wonderful nation on earth would see Japan as growing.

  • genie222001

    South Korea’s economy can’t be compared to Japan’s.

    Japan has trillions in tangible assets, trillions in an economy, Trillions of the equivalent in dollars, it has the laboratories, factories, talent and etc that are far exceeding South Korea. And Japan is the biggest contributor to IMF and World Bank. The Japanese government recently signed with IMF to provide $60 billion in emergency loans to the multilateral lender amid the global economic downturn following the sovereign debt crisis in Europe.

    Ultimately, all of Asia’s economies will stagnate like Japan, but have worthless currencies. Take the IMF bailout of Korea during East Asian financial crisis back in mid 1997 as an example. At least the Japanese Yen can still buy things outside of Japan.

  • Awarren

    “Having said that, I do know that a lot of academic jobs for English speakers in Korean universities is often that of a glorified English teacher’s.”

    Yuna – what you are describing it the general taint that is associated with foreigner from any profession that voluntarily stays in Korea more than 3-5 years, unless on government or expat assignment.

    Hmm – I wonder why that is? Please read that article again and think about it. And by the way – the perception is universal; no distinction between Koreans and foreigners here.

  • YangachiBastardo

    At least the Japanese Yen can still buy things outside of Japan

    Not for long, the deterioration of the yen has already begun. Actually the yen and the NZ (aka the Greece of Asia) $ are probably the short of the decade.

    Even if the truth is nobody can really predict the fuck is gonna happen 20, let alone 50, years from now.

    Who would have forecast in 1945 that a razed to the ground Tokyo was going to give NYC a run for her money in less than 50 years ? Who, at the dusk of the 1980′s, would have instead predicted 20+ years of Nikkei decline ?

    How many people thought the USSR was going to surpass the US ? How many people saw instead the collapse of the USSR ? How many observers, during Bush # 1 years, correctly forecast the spectacular recovery of the American economy of the 1990′s ?

  • genie222001

    @YangachiBastardo

    Japan has experienced economic stagnation for 20 years, but Japan still trounces Korea in terms of economic size and productivity. Japan’s GDP stood at US$5.87 trillion last year, more than five times Korea’s $1.12 trillion. Korea’s major businesses still depend on Japan for a large number of core technologies and key components. As a result, Korea still buys more products from Japan than it sells. As I said, you can’t compare South Korea’s economy to Japan’s.

  • YangachiBastardo

    Japan’s GDP stood at US$5.87 trillion last year, more than five times Korea’s $1.12 trillion

    Leaving aside the obvious demographic difference, lots of the per capita difference is explained by some by the lack of some sorely needed currency re-alignment. The won is definitely undervaued while the value of the yen is another ridiculous bubble soon or later (sooner rather than later imho) to be mean reverted.

    In real terms the standard of living among the countries don’t differ much: in terms of quality of housing, availability of calories, cars etc. Korea seems much better.

    Actually in many departments Japan barely has the look and feel of a developed nation.

    You have a partial point when you mention the terms of trade of the 2 countries, even if most of it is due to the different niche they occupy. Japan is specialised in core capital goods, while Korea has been tronucing Japan in finished, branded goods. The trade deficit Korea has with Japan is more than made up for by the large surpluses recorded with the rest of the world.

    It would be like saying Foxconn is a much more productive firm than Apple cos well the latter has a huge trade deficit with the former.

    By the way Japanese terms of trade have been deteriorating steadily for a while.,,the history of Japan crash has just begun

  • YangachiBastardo

    I really wonder how moderation works… :)

  • cm

    “Japan’s GDP stood at US$5.87 trillion last year, more than five times Korea’s $1.12 trillion. ”

    - it helps when you have a population two and a half times the size of Korea’s population.

    “Korea’s major businesses still depend on Japan for a large number of core technologies and key components.”

    - That dependence is weakening, as shown by Korea’s rapidly shrinking trade deficit with Japan which was chronic.

    “As a result, Korea still buys more products from Japan than it sells.”

    - Yes, for now at least. But in few more years, that could change, if the current pattern holds.

  • redwhitedude

    In the long run if politics keeps being the way it is for Japan they could very well squander all the advantages Japan has over Korea. History has shown that regardless what advantage a country has over others in other areas(science/tech, cultural, etc..) if politics is bad/dysfunctional given enough that all that advantage will evaporate.

    In this case the high yen will cause other countries to outsource parts away from Japan and in some cases even if it is less efficient to do so if the yen is too high.

  • dokdoforever

    In terms of GDP per capita in terms of purchasing power parity Japan stands at $34,700 with Korea at $31,200.

    Korea will probably surpass Japan in ppp GDP/capita in the next five years or so.

  • genie222001

    @dokdoforever

    GDP by PPP figure is not a good measure of wealth because the quality of the products in different countries are not taken into account. Japan is certainly way richer than Taiwan despite Taiwan’s GDP/capita by PPP is higher than Japan’s. The reason why Taiwan’s per capita GDP based on PPP has already surpassed Japan is things are lot cheaper in Taiwan. I also do not believe S.Korea would any time soon surpass Japan because S.Korea faces the serious concerns of rapid aging and lower birthrate than Japan. Sure, S.Korea’s GDP has increased but it’s domestic economy is too weak to be collapsed easily.

  • Anonymous_Joe

    #31 genie222001: @dokdoforever

    GDP by PPP figure is not a good measure of wealth because the quality of the products in different countries are not taken into account. Japan is certainly way richer than Taiwan despite Taiwan’s GDP/capita by PPP is higher than Japan’s. The reason why Taiwan’s per capita GDP based on PPP has already surpassed Japan is things are lot cheaper in Taiwan.

    Aside from the minor mistake of using “measure of wealth” for “measure of income”, per capita PPP is a pretty good and excellent for a quick measure of how economists gauge happiness. Your point about differences in quality is a bit overstated. For some goods and services the quality difference (e.g., haircuts) between Mogadishu and NYC is trivial; for others, the quality difference (e.g., housing) is substantial.

    The last (quoted) sentence “The reason why Taiwan’s per capita GDP based on PPP has already surpassed Japan is things are lot cheaper in Taiwan” is the very reason for PPP comparisons. By PPP, typical Taiwanese enjoy a higher standard of living than typical Japanese.

  • genie222001

    @Anonymous_Joe

    You seriously think people in Kuwait enjoy a higher standard of living than people in United States, Japan and Germany? Women in Kuwait still face government-sponsored discrimination that renders them unequal before the law – including discriminatory family codes that take away women’s legal authority and place it in the hands of male family members – and restricts women’s participation in public life.
    Take away Kuwait’s oil resources and what do they have left? GDP by PPP figure does not equal happiness.

  • Anonymous_Joe

    genie, I never said it did. I wrote, without gettin’ my full wonk on, that per capita GDP normed by PPP is a way economists measure aggregate happiness. The simple measure, much like baseball’s batting average, has fairly good predictive power. Look at a list of countries listed by PPP, and you’ll see a list approximately ordered by where most people would want to live.

    I would quickly tweak the per capita PPP statistic by using the medan PPP of a country’s people, much like using OBP over BA in baseball.

  • genie222001

    @Anonymous_Joe
    >Look at a list of countries listed by PPP, and you’ll see a list >approximately ordered by where most people would want to live.

    LOL. Let’s see To 10 list of countries by GDP (PPP).
    1 Liechtenstein
    2 Qatar
    3 Luxembourg
    4 Bermuda
    5 Monaco
    6 Singapore
    7 Jersey
    8 Falkland Islands (Islas Malvinas)
    9 Norway
    10 Brunei
    http://www.indexmundi.com/g/r.aspx?v=67

    If you believe that most people want to live in these countries then you are just nuts. Most of the people in the world don’t know Liechtenstein and even if they do, they don’t even think about going there.

  • Anonymous_Joe

    #35 genie222001: If you believe that most people want to live in these countries then you are just nuts. Most of the people in the world don’t know Liechtenstein and even if they do, they don’t even think about going there.

    …ahh, another stormtrooper for the language police. If you’re going to strictly construe what I posted, then make sure you quote me correctly:

    #34 Anonymous_Joe: “Look at a list of countries listed by PPP, and you’ll see a list approximately ordered by where most people would want to live.”

    …and if you look deeper at my full post, which was really a small paragraph+, you will find that I wrote “simple measure”, “fairly good predictive power”, and “quick tweak… (use) median PPP.”

    If you are serious and want to debate the merits further, I’ll do that, but you need to read first, check your lulz at the door, and open your mind to learning and exchange rather than winning and blocking.

  • Anonymous_Joe

    genie, in @36 I apologize for misleading in my post about misquoting me. You misconstrued, which I hope was not purposefully, my quote.

  • genie222001

    @Anonymous_Joe

    No credible economist uses GDP by PPP figure to measure aggregate happiness. No credible economist claims that people in Liechtenstein have the highest standard of living. That’s the fact.

  • Anonymous_Joe

    No credible economist uses GDP by PPP figure to measure aggregate happiness.

    @genie, many credible economists discuss PPP for two reasons: first the theoretical economics behind it and their shortcomings in the real world, and second as an empirical measure of how economists measure happiness. Outside the Econ 101 whiteboard, the util doesn’t exist.

    No credible economist claims that people in Liechtenstein have the highest standard of living. That’s the fact.

    Again, reread my original sentence on that. I never stated such. Breathe, reread, and breathe again before you repost.

    (BTW, there are other lists of PPP. The one you referenced was so inclusive to include two places, Jersey and Guernsey, I had never heard of near the top of the list. Most lists of PPP have Luxembourg at the top.)

  • slim

    I hate to waste a Saturday on this kind of thing, but here’s what the IMF says about the question:

    PPP versus market rates

    So which method is better? The appropriate way to aggregate economic data across countries depends on the issue being considered. Market exchange rates are the logical choice when financial flows are involved. For example, the current account balance represents a flow of financial resources across countries. It is appropriate to use the market exchange rate to convert these flows into dollars when aggregating across regions or calculating the global current account discrepancy. But for other variables, the decision is less clear cut. Take real GDP growth. International organizations use different approaches. The World Bank uses market-based rates to determine the weights in its regional and global aggregations of real GDP, whereas the IMF and the Organization for Economic Cooperation and Development use weights based on PPP rates (although the IMF also publishes a global growth aggregate based on market rates in the WEO). Each methodology has its advantages and disadvantages.

    (On the whole, the literature supports Genie over A_J, but please A_J, don’t use this small point to launch another of your boorish and tedious nitpickathons here. I will not be checking back in.)

  • Anonymous_Joe

    @40 Slim, gratuitous comment aside, your post has absolutely no relevance to this debate. Did you just google PPP, copy, and paste? “On the whole,” you have no idea about what you posted. (BTW Slim, it’s cheap to take a shot and then pretend that you’re above the fray by stating that you’re ducking out.)
    *********************************
    Genie, I don’t like to appeal to authority or outside knowledge in online debates because I like to think that we have an exchange of ideas. I’m going to break that this time, so if I use any standard economics terms that you don’t understand, then educate yourself on the matter. I don’t wish to offend slim.

    @31 genie, you are confusing income and wealth. Income is a flow measure (and not the same flow variable as @40 slim used for flow variable) and wealth is a stock variable. That’s point one.

    Point two is that per capita GDP is a measure of standard of living used by economists. Per capita GDP measured, in say USD, is affected by the exchange rate and price level. PPP is used to “norm” those affectations.

    Point three is that PPP is imperfect. It’s underlying assumption of the theory of one price assumes zero (what economists call) friction. The real world fact of the matter is that I can’t take advantage of the price differences between NYC and Seoul in the haircut market.

    Point four is that PPP relies on per capita GDP, which has tremendous imperfections built in. An increase in GDP does not necessarily mean an increase in standard of living. Example: if a country has a nuclear accident, the economy will experience an increase in GDP for that year to clean up the nuclear waste. I don’t see the country better off from the year before.

    Point five is that economists use per capita GDP PPP as an (not the end all and be all) objective measure of aggregate standard of living. Look at your list again and compare the top 10 to the bottom 10. I’d rather live in any one of the top 10 over the bottom 10. Now reread my original post about “approximately ordered list.”

    Finally Genie, your anecdotal use of Kuwait (@33) for discrediting per capita GNP PPP as correlated to standard of living is fallacious. I would further explain but I don’t want to offend other’s with my use of bandwidth.

    Best wishes,
    AJ
    ******************************

  • genie222001

    @Anonymous_Joe

    Here are facts.
    Japan has 1121 billion dollar US Treasury bonds.
    Net external assets is 260 trillion yen.(world’s best)
    Deposit and saving of citizens is 800 trillion yen.(world’s best)
    Japan’s collective assets is 8553 trillion yen.
    Japan is a G8 member.
    Japan is the largest contributor to the IMF and South Korea’s financial crises over the last decade have been saved by Japan.
    Korea’s economy will never surpass Japan’s. Just deal with it.

  • Anonymous_Joe

    @42 genie, really man, WTF???

    Where can you possibly glean from any one of my posts that I either agree or disagree with your statement, “Korea’s economy will never surpass Japan’s. Just deal with it.“? I made no statements even remotely addressing whether Korea’s economy would surpass Japan’s.

    I don’t mean to seem insulting, but is English your first language? Please look over each of your previous posts in response to mine. You followup with leaping non-sequiters.

    I only had one point, which I stated in my first post, reiterated in my second,

    34 Anonymous_Joe: “I never said it did. I wrote, without gettin’ my full wonk on, that per capita GDP normed by PPP is a way economists measure aggregate happiness. The simple measure, much like baseball’s batting average, has fairly good predictive power. Look at a list of countries listed by PPP, and you’ll see a list approximately ordered by where most people would want to live.”

    and tried to explain in every post since.

    This is first month, first semester, intro to macroeconomics material to me, and I have nothing to learn, or apparently to impart, here.

    Again, best wishes.
    AJ

  • http://bcarr.com Brendon Carr

    The [list of per-country GDP by purchasing-power parity] you referenced was so inclusive to include two places, Jersey and Guernsey, I had never heard of…

    Really? You’ve never heard of Jersey and Guernsey? How ignorant. I don’t suppose you ever heard, then, of Alderney or Sark. They’re really interesting places.

  • CactusMcHarris

    Wasn’t Guernsey the only bit of (then) British territory captured by the Germans in WWII? Or was that in a Jack Higgins novel….

  • sojufan_5944

    genie222001, just foad, thanks..

  • http://bcarr.com Brendon Carr

    The Krauts got Guernsey and the rest of the Channel Islands, and even built concentration camps on Alderney.

  • Anonymous_Joe

    44 Brendon Carr: Really? You’ve never heard of Jersey and Guernsey?
    My bad. Of course I’d heard of those Channel Islands. Because of context, I was thinking along the lines of sovereign states, like they were a Lichtenstein or Monaco and nestled between or within other countries.

    (Actually, my first thought was the old SAT analogy test:

    Jersey : Guernsey :: _____________

    I remember a critical study that talked about the white, male, urban, affluent biases in the SAT, and that example rushed back.

    BC, you strike me as white, male, urban, affluent, and biased. What do you think the answer was? (I’m sorry I can’t recall the multiple choice selection) )

  • http://bcarr.com Brendon Carr

    Wrong again. I’m white, male, rural/suburban, affluent and biased (but only against liberals and hippies). I used to live in a Goat House™, goddammit.

  • gbnhj

    I’d guess Holstein (think cows, not goats).

  • Anonymous_Joe

    BC, I knew you grew up in farm country. On a recent thread, you wrote you were from Mizzou.

    gbnhj, that’s it.