Transcript of Executive Breakfast
Korea as Development Model

STEPHEN NOERPER:
Good morning and welcome to a discussion on Korea as a development model. In 2010, the Korea Society offered a fine slate of Korean policy and arts programs. Business policy speakers included Bank of Korea chair Kim Chong-soo; Korea Investment Corporation’s Scott Kalb; Ministry of Finance and Strategy Vice Minister Hur; Henry Seggerman on touch screen and cloud technologies; Mark Noland of the Peterson Institute of International Economics on North Korea's currency devaluation; and Brookings’ Colin Bradford on the G20 Seoul Summit agenda and the G20 lead-up.

We'd like to thank the Tong Yang Group for this podcast, and thank Samsung for its sponsorship of the Samsung Center at The Korea Society. I'd also like to thank our program officer, Natalee, for her kind assistance this morning.

Mention of the G20 leads us to today's discussion of Korea's development model. The subject is popular in Korea and has received attention in the context of the G20 summit, given Korea's emphasis on its unique role in bridging developed and developing countries, and in terms of its ability to facilitate discussion on forward-looking development.

Korea's emphases on climate change, and on green technologies and green growth, have further underscored these proclivities and put Korea out there as a model to be examined. I'd like to emphasize five points, and then open up for a bit of discussion.

Development modeling has focused on Korea’s economics and economic history as metrics of the Republic of Korea and its relevance for developing economies elsewhere. As I've listened to discussions from Seoul to Washington on the topic, I find this focus comes with baggage, and it makes framing the Korean example difficult. There are obvious extremes around the Korean development model of the 1960s and the 1970s, the export-led growth model. Related are debates not economic in focus, and which tend to be value laden, especially when it comes to political dynamics and the legacy of authoritarianism. Most of the discussions center on the appropriateness of that political legacy. There were labor and human rights concerns.

In that period we also have a backdrop of the Cold War divide and client state dependencies, significant and beneficial U.S. Agency for International Development Assistance, and U.S. security guarantees which impacted Korea's development process, albeit largely positive.

My first point is that we should consider Korea as a development model more in its current context and think of Korea as a facilitator for dialogue on development, given its dramatic trajectory over the years. One looks around globally and notes that if not unparalleled, there are few other examples of this type of economic success and open democracy.

I also would emphasize Korea in its regional and its global context, its political development by way of democratization, and example for other new democracies or near democracies. If one looks across Eurasia, Korea is a model and has been for countries like Mongolia as it transitioned the last twenty years. Many aspects of Mongolian political development have been similar to political evolution in Korea.

As we look at areas of political fragility (and here I'm thinking primarily Central Asia and the "Stans") Korea is a harbinger for democratic proponents hoping that their nations transition to a more open, liberal democracy. For Southeast Asia and elsewhere, the Korean experience can be very interesting and instructive.

The transition in Korea was a fascinating in 1987 and 1988: it's coming out on the global stage with the Olympics, in its context relative to the end of the Cold War, and preceding movements in the Eastern Bloc and the Soviet Union. These aspects give the Korean democratic experiment at the time, and the decision not to revert to authoritarianism, a special place in history. Moreover, the movement from party and personality politics through the 1990s and into the 2000s to more formalized institutions shows maturation, and that maturation is extremely important for new and restored democracies. This is something that people note in areas with more autocratic leanings or democracies in name only, such as Russia. The Korean model is something that merits attention.

You may recall that in the 1990s there was a debate between Kim Dae-jung and Lee Kwan Yew, where Kim described the two sides of the coin for Korea, meaning democratization and economic modernization. He argued that both were necessary and also likened them to two wheels of an oxcart, that the wheels have to both be in place for there to be a positive movement forward, meaning that economic modernization helped further the democratic experiment and meaning that true modernization didn't come until the democratic experience.

Korea saw a remarkable rise in living standards with the democratic transition, an expansion of the Korean middle class, which became a viable part of the marketplace, and the continued and beneficial focus on education. Korean literacy rates historically have been among the highest in the region and among the highest globally. Moreover, the aforementioned growth of institutions became a foundation in the public sector and civil society, where Korea is quite active.

Lastly, I would point to Korea's remarkable diplomatic growth. This is less focused upon, but it's something I argue is an important part of the development model. In terms of diplomatic modernization, we note the ability of South Korea to grow its legitimacy in the international arena, especially vis-à-vis North Korea. As recently as 1974, opening remarks by member nations at the United Nations General Assembly tended to support DPRK initiatives. That obviously (and it's hard for us to even think of it now) has reverted, and certainly the diplomatic legitimacy of the ROK has leapt accordingly. South Korea scored significant gains at the end of the Cold War: the recognition of places like Poland, the Czech Republic and Hungary; recognition from the Soviet Union and then Russia; in 1990 came Chinese recognition; and then in 1992, the two Koreas joined the United Nations, which was really a Seoul-led process.

This has special appeal, as Korea grew into a strong middle-level diplomatic power, something that stands attractive for smaller and middle level powers looking for legitimacy and an ability to present themselves as modern, sophisticated and having very good relations.

Furthermore, if we go with a more current and seemingly holistic definition, it is apt to the discussion of the bridge role for Korea mentioned in the Seoul G20 Summit context. This is the role that Korea seeks to play as a country that has developed, as one now industrialized, an OECD member and modern in every sense of the word.

Korea’s bridge role can be seen in its stated desire at the G20 for economic safety nets. These were born primarily of the economic crisis of 1998, when there were some very hard lessons learned, and measures then put in place were noted by Bank of Korea President Kim Chong-soo during his visit here last August. 1998 put fundamentals in place that made Korea’s ability to weather 2008 and 2009 easier. The BOK President and earlier in 2010 Finance and Strategy Vice Minister Hur described to our New York audiences a fairly quick rebound, especially relative to a lot of other countries, including the United States and EU countries.

Korea has described in its foreign and economic policy outlines it desire to serve a facilitator for Asia and developing countries. I think again of Mongolia, where our President, Ambassador Mark Minton served. I went there as a Fulbright Senior Scholar and taught at the National University Korean studies and Korean development given the interest among graduate students in trying to find part and parcel of the Korean experience to, if not replicate, at least incorporate into the fold of their own national development.  It proved to be a very interesting experience. They also took a page by way of Korea's commitment to the region in areas like peacekeeping. They saw a model of responsibility put into place earlier by Korea, certainly a positive reinforcement, if something not entirely explicit.

Korea’s regional and global commitments on peacekeeping are emboldened by Korea’s acute exposure to issues of security and development. There is an intrinsic link between development and security that has been an interesting part of the Korean experience. In the Korean mindset, that's meant more willingness to adopt regional commitments and global commitments on issues like peacekeeping, and Korea has made that commitment in terms of trying to provide support for initiatives like that in Afghanistan.

Another point is by way of Korea’s soft power projection, and that's no small thing. Korea’s flowering on the soft power front in culture and the arts is fascinating. There is the appeal of film, K-pop and telenovelas across the developing world, not only in developing Asia, but in Latin America and in Africa. And then there is positive identity associated with the export of Korean brands, the appeal of LG, Samsung, Hyundai, and the penetration of Korean banks, especially in developing countries, all making for a fairly heady soft-power complex.

A further point is that Korea's development “outreach” is rather broad, from official ODA to the good work of organizations like The Korea Foundation. For China, development assistance became one where nations would accept assistance and then recognize Beijing. We've seen an evolution as Beijing hosted gatherings for developing nations, for example the large one that took place on Africa prior the Olympics. China has tried to place itself as a leader of the Group of 77, and a country that espouses developing nation concerns. But in many ways, the Korean model is more interesting.

Certainly it has a smaller and middle power appeal. It comes without the baggage of great power interests and conditionalities. Approach the Korean assistance model from the same vantage as one would the Canadian or Australian. These linkages are important, especially as to my final point, which is the bridge back to Korea for its own development needs.

Korea’s soft-power projection and development outreach are pervasive. As one looks across Central Asia, Southeast Asia or South Asia, Koreans are there, whether for business, in a faith context or by way of humanitarian assistance. Korea’s penetration may be likened to that of larger nations like United States; there has been tutelage and a demonstration effect forward.

Though now outward, that focus will change eventually inward with the integration of the northern part of the Peninsula. Eventually the development process (hopefully) will bring a stream of development capital and intellectual expertise. The eventual reunification of Korea will need inputs from international financial institutions that currently exist, such as the Asian Development Bank, the World Bank and IMF and possibly by a new Northeast Asia Development Bank or project, which in northern Korea and across the sub region create common support to meet development needs in agriculture, energy and infrastructure.

A united Korea will have development priorities akin to rural China, Mongolia and the Russian Far East. There exists a tremendous amount of growth potential, from a business perspective as well as from a development economics point of view. When one speaks of Korean integration, one is really talking about the greatest development challenge the region probably will have known since the Korean War: integration in terms of national reconciliation and the investment that will need to be made. The burden-sharing will be much heavier than what we saw in the German case, and this will necessitate creative solutions to ease the burden on the South Korean taxpayer. In the end, that makes this notion of Korea as a development model very much a vested interest for the Koreans, and one that will come back to them over time.

That both differentiates it from other discussions of development assistance and development models, and puts it, I think, in a very special context that may have appeal to development professionals who are looking and thinking ahead. I would be happy to talk about any of these points. Any thoughts?


Question:
I had a question. Rapid development and growth benefit from a small population and access to local resources Now that Korea has grown so much that essentially they have to import all of their food and several other natural resources, is that going to affect their export led growth model by the fact that they need to import so much now just to match their growth and size?


Answer:
It's a great question, and you've put your thumb on a current dynamic. One would assume that there are two sorts of phenomena. It's the maturation of the growth model, and the reality that we're in a period of globalization. Korea's need for energy is such that the diversification of access to energy resources is a priority, especially in the event of reunification of the country; pipelines possibly and the Russian extension beyond means that we'll see new resources. When we look now at the realities of globalization, there are areas of strategic advantage and need that all countries have, and so discussion of export led growth in a traditional context is very much changed. The new definition is such that it implies a lot more dependencies, which also have an economic security aspect.

We're talking about food sustainability and energy, agricultural needs and different aspects of industrial development. Even development and distribution of commercial products, where Korea is technology driven—it’s heavy Internet penetration and wired status, which is another aspect of its development model.

Part of the reason we did the spring session with Henry Seggerman on cloud technology and on touch screen technology was to talk about new areas for competitive growth for Korea, and what might be interesting for U.S. and Korean investment in Korea on these fronts. He saw it as something beyond automobiles and flat panel technology, and maybe the next-up. I think ultimately anyone investing will be very interested in those sorts of new inclinations and new technologies.


Question/Comment:
You explore two aspects: one is Korea as a development model, and the other is what Korea is doing now, in going forward, that will be helpful to the rest of the world. There a lot of interest in Korea's movement forward because of its rapid development. That gives a legitimacy to Korea and attracts interest in Korea; particularly, as you say, because it is a player without a position to overwhelm anybody, unlike China, the United States or even the EU.

Aligned to this is your point that Korea as a development model is of particular pertinence to Korea as part of a larger world. You mentioned Mongolia. They're actually related to the Koreans, as far as I know, along with the Stans and East Asia. Whether the argument I'm about to make is applicable elsewhere in the world in practice, although it is in theory, may be a different question. The baggage of the past is an essential part of the development model. You can't get away from it. I'm speaking as someone who first went to Korea in 1971. I lived there and was the head of Citibank from 1974 to 1978 when Korea, at that point, really made its first inflection to go in. I can remember writing commentary about how in the mid-nineties, Korea would be a cadet member of the OECD. In fact, I think they moved a little faster than my expectations, but at least I was directionally correct. If I go to the model, it seems to me that an essential element you can't get away from in discussing Korea (and I think it's pervasive across East Asian society) is the idea of proper place. There's no question that the Koreans, in the early sixties, thought that they were not in the place that they should be, particularly vis-à-vis Japan. Now China has kind of come on
along with others.

My opinion is that the Korean nation (which at that time had its two successful institutions, one which was the military, and the other—although it's clearer now than it was then—the educational system) made the decision that they would do what was necessary to become a proper country in their view. Koreans, of course, have an interesting mixture of xenophilia and xenophobia. I think any of us who have spent any time in Korea know that it's always fluctuating back and forth depending on the circumstances. In those days, xenophilia was mainly towards Japan. Park Chung-hee read the Nikkei as his primary source of economic information, and back then all the old guys spoke Japanese. In fact, all of them were pillars of the old regime in many ways.

In my view, what happened is that they decided, fundamentally, that by accepting the military government, they could move ahead, and that it was not acceptable for them to be looked on as an extremely poor neighbor of Japan. So, you had through the sixties, seventies, and even into the eighties and the nineties, an economic approach of “out-Japaning” Japan. Some people cautioned about that. Many believed that this was a strategy that would come to an end and run out of gas, as indeed it did. I don't think you can get away from that psychology. I mentioned earlier that I am an advocate of a theory of economic development thinking I call "displaced elites." It works best with the samurai, but I think that the Korean elite decided that they were displaced; in other words, that they weren't what they should be.

Certainly as a beginning to economic development, the military approach was, at least as implemented in Korea, not so bad, because it had a huge emphasis on physical production. It was all about building things, and they were willing to borrow money more or less anywhere to do it. They financed the Pusan Expressway with eighteen-month grain credits. They were willing to do most anything to get things going, and that worked fine until the eighties when the economy started to get a little more complicated. Physical production then ran out of gas. It took them quite a while, as the governor you quote pointed out. It really took them up to the end of the nineties to figure out that economic management was not simply about getting it done, but required more.

But the idea of proper place, in my view, also applies to democracy. You're not a proper country if you don't have it. Maybe even still, Korea is an East Asian democracy. It doesn't work quite the way ours does. They're better than Japan, in a sense. Japan is struggling because their model has run out of gas. The NGOs, and opposition parties that can actually win in Korea, are relatively recent phenomena in Japan, but certainly not in Korea. This is something that, as a proper country, makes you a bourgeois democracy. I remember Don Oberdorfer came to see me around 1976, and he, of course, didn't like the military government at all. None of the journalists did. But I said to him, "Look, this is a Marxist interpretation. Park Chung-hee is digging his own hole by building the economy." In conjunction with the high level of education in Korea, it fundamentally made an authoritarian regime which, at a certain point, had to cease to exist. Kim Young-sam was an old regime kind of guy, in a way, but he was new; and so it was a fifteen-year transition, I suppose.

And so now Korea is what it is. To conclude, I think it's good to focus on what Korea can do. Koreans, of course, will love this. They are still figuring out a role in the context of we should have an important role, and so it's part of the psyche. Just like the export salesmen were out in the sixties and the seventies, now the diplomats and the NGOs and the Protestant missionaries are out there. This is what we should do.

Now the problem with all that as an economic model is, does any other society have that level of coherence that they can actually do this? I would argue that. I've spent a lot of time in many different countries, and very few places have this same kind of determination. Not that Koreans always agree with each other or don't squabble or are not bureaucratic and fractional, because that does happen. I think "unique" is a word one should be quite careful about using, but certainly "unusual" is good. Now it's good that some of the things that Koreans do are being copied by other people. That's great, because these things worked in Korea and they can work elsewhere. But each country is going to have to put what they learned from Korea into their own social context, and I would argue that the Korean social context is a very special one that I don't think can be replicated. And development planning should not be based on the assumption that the Korean psyche can be recreated anywhere else; although, as you point out, there can be found in East Asia and in China many things that remind me of Korea.

I do banking work, mainly, and the Chinese banks are like the Korean banks were forty years ago. They want to learn, and they have the idea that to be a proper bank, you need to do certain  kinds of things. And they're gradually learning. In China, the party is going to have to relax its grip. I'm not counting on that now, but to me fifty years from now, we will look back and see the “Koreanization” of China.


Answer:
Certainly your experience and exposure makes for very rich discussion. I think this idea of looking forward and looking back is interesting, because II come from a career that's been in the classroom and NGOs—we talk about this very much in the context that you describe of the linkage to the Japanese colonial realities; and then oftentimes, certainly in at least one school of thought in Korean studies, the linkage to dependencies on the United States in the immediate aftermath of the war, the development model that was put into place.


Question/Comment:
And the one reason why the Rhee government functioned very poorly was that it was dedicated to the extraction of rents from aid, and the military government said no, we'll go out and do it ourselves.


Answer:
When it's presented in the classroom or in economics circles here, there tends to be discussion of whether or not, in actuality, there are beneficial aspects of the Japanese experience. Of course, that doesn't sit well with Korea national sentiment (understandably). There's discussion of the U.S. effect; the aid was beneficial, and the security guarantee beneficial in another sense, meaning to provide oxygen so the country could breathe and focus on development.

But as you say looking at it with a very critical eye, where things become interesting is when that aid stopped, and when Koreans began to make it very much a Korean development process. Whether there were tutelage impacts from the earlier eras, that can't be denied, and whether or not there were infrastructures laid and distribution systems and education priorities that developed over that time, certainly.

But it does become more of a hybrid, and so I think your second point about the focus on the contest for legitimacy also makes it very special. And the only other contest for legitimacy we can talk about in the East Asian context might be the China-Taiwan one. And this one is of a protracted period of six decades, a contest for legitimacy hasn't diminished in the Korean mindset. But as Korea has modernized and flowered on cultural and other fronts, it really does remind one of, say, a developing Japan in the 1970s and in the early 1980s. And so Korea has come of its own.

There is this accelerating effect, because the Korean model and discussion of the Korean model is, frankly, probably hotter now than it's been in any other period, I think, because they've reached that level of economic prosperity.


Question/Comment:
Just the idea of discussing this, of course, very much fits in with the idea that Korea has a certain place. Interestingly, the former colonies of Japan probably have done much better than the former colonies of any other country when it comes to economic development, i.e., Taiwan, and now in a certain sense China which, of course, was influenced by Japan and Korea. One of the interesting things I think you ought to think about as you move forward would be to get Japanese and Chinese viewpoints on the development of Korea. In other words, don't just have this as an American and Korean dialogue, because the Japanese have their own views on Korea, as we know. And I think, again, Chinese scholars would be very interesting contributors. Then maybe somebody from Mongolia; but certainly Japan and China would be interesting to look at.

The issue in a lot of ways, to my way of thinking, is national mobilization. I mean, mobilization is what the military does, and actually this generation, with Park Chung-hee's class, and then the ones from the Korean Military Academy are actually the ones who made the thing happen. I think they just got to the point where they just couldn't stand it anymore, and most people agreed with them. The Korean military comes out of the society, and national conscription, and so on. For example, the reason they were so successful in the Middle East, in part, was that the military discipline on the construction companies really impressed the clients. I think Koreans have proved to be, however, more adaptable than the Japanese. We could discuss various reasons for that. Maybe the xenophilia/xenophobia balance is a little better for the Koreans, because they're a little bit smaller and have been at it less long.

But also I think they realize the world is changing a little bit, and certainly the one thing that shouldn't be forgotten is that when Korea first got started, the United States was basically prepared to buy anything that they were able to sell. And that's now the question to find out, whether they're moving to become more technology oriented. It's not cheap labor anymore. But they did it, really, at the right time. Whether that could be done again is less clear.


Answer:
I think your observations speak to two things worth flushing out. One is, why the adaptability? And it's interesting in the sense that they may have natural proclivities and your xenophobia comment is interesting relative to the fact that in many ways that anti-gaijin concern is much more of a Japanese reality.

In the twentieth century, Korea has had to deal with the foreign interests on its soil. If one looks at it in its most positive light, one notes the tutorial impact of the United States, which contributed to a mindset and adaptability. Secondly, in terms of the development model, one really shouldn't look at it in a static way. One will see an evolution once integration accelerated, where suddenly cheap labor is available again, meaning from the northern half of the peninsula; how will the development experience have been instructive? There will be a period of comparative advantage with South Korean resources, including managerial and northern Korean labor pools that may create a different sort of reality. That may have advantages and will certainly have challenges.


Question/Comment:
That was certainly the theory when the two Germanys came together, but I think while I wouldn't necessarily disagree with it, they may say, "Gee, we want to have a bunch of low wage Koreans. Boy, what we can do with that." The East German culture had changed a lot in their years under the Communists, and North Korea is far more closed than that; so I think your comment is certainly in the range of possibilities, that the individual North Koreans will immediately become highly productive South Korean workers. It will be a long transition, yes.

On the other hand, South Korea is about twice as big in population as North Korea, so that's actually not too dissimilar from Germany. South Korea is less rich. That's an interesting issue although, in terms of what the Republic of South Korea can offer the world is probably a little bit peripheral to what I think is a certain celebratory aspect of this kind of discussion. Here's what we've done. Here's what other people can learn from us. We're happy to be helpful.


Question:
Have there been examples of the South Koreans trying to promulgate their development model in other countries actively? Because I know during the nineties, they were doing a lot of work in Africa, and a lot of their textile imports were exported out of places like Madagascar, which was very dependent at the time on the Korean economy. And so, while they were there, or while they've been in other countries, have they actively worked with the government?


Answer:
Since the early 1990s, it has been a stated priority. I remember being in Panama in 1991, and there was a heavy Korean bank presence. Korea has been very active in Brazil and other places. In some ways, access to energy or markets has been a motivator, as it has been for China and other countries. But I think that it's a little different. As a middle level diplomatic power, Korea has done it a bit softer. They have been in on the business front, but also, increasingly, on the soft power front. There's been discussion of placing academies in different developing countries, along the line of the model of the Confucius Institutes that China is pushing heavily.


Question/Comment:
They've been very successful in India, probably more so, in my impression, which is not supported by any particular knowledge of real study. I mean, it's incredible the Pohang Steel Company wants to spend $20 billion in India. In 1962, the idea that Korea could produce any steel; whereas India had, actually at that point, a fairly large industry for building the New Delhi rapid transit. But I think Korea, in that sense, said, "This is what we want to be, but we recognize that as a country of forty million, there's only so much that we can do. Let's go to Mongolia, the Stans and maybe Poland, places that are a little under the radar of the Japanese, who are, perhaps not as adaptable in any case, and build it that way."


Answer:
An excellent point. Going forward, it will be interesting to see how these priorities play out. Korea has really come out, and this is all fascinating. Thank you.