Left Flank

Oh, Busan!

The Busan Regional Labor Office has begun a probe into a Chinese laborer who informed authorities there that he received no severance pay even though he worked for three years at a factory in the southern port city. If he is found to have worked in Korea without a work visa, then he faces deportation. But even faced with that possibility, the laborer hoped to receive his severance money. A day before he was set to appear before Busan labor officials, he received a call from his factory saying his money was ready. When he visited the factory, he was arrested by police and handed over to immigration authorities.

A similar incident took place in August of last year. A laborer from the Philippines who worked for 15 to 20 hours a day for two years at a factory in Pohang appeared before labor officials in the southern port city after his employer allegedly refused to pay him wages and severance pay. This laborer was also arrested by an immigration officer while he was being investigated by labor officials along with his employer. The employer had called immigration authorities. These are cases that have been revealed by a civic group in Busan working to help foreign migrant workers.

But, ROK has just elected a pro-business president (via DPRK Studies), right? So, nasty stuff like this will dwindle, right?

I worry, then, that when Koreans say that Lee Myung-Bak is "pro-business," what they really mean is that they hope he is pro-Korean business, in the sense that he will return the country to the days when the government subsidized Korea companies (who then guaranteed lifetime employment) while protecting the local economy from the rigors of global competition. Business is, after all, so much easier when one isn't forced to worry about being profitable.

This immunity from competition, in addition to producing inefficient firms, has allowed a host of other problems to fester within the country: companies have less incentive to hire and promote females; a simultaneous system of collusion and gridlock amongst labor, government and business has taken root; and Korean universities produce a lot of managers, but precious few leaders. It may be a oversimplification to say that making Korea a free trade zone would solve these problems overnight, but such a policy would be a necessary step in that direction.

As Hussain notes, Korea's economic structure worked well when it was a developing nation, trying to catch up with and join the league of advanced economies. The problem is, this catch-up structure won't allow Korea to excel in the 21st century and compete in the global economy, particularly in light of the rise of a certain neighbor to the west (the proximity of which can also be an asset, if used properly).

None of these changes, however, will come easily. Lee Myung-Bak is going to face some brisk resistance if he does in fact move forward with the changes necessary to revitalize Korea's economy. In particular, I wonder if he's up to the task of confronting the culture of corruption that has permeated Korean government and business circles, particularly when those in need of confrontation on this front may include the likes of his former associate, Hyundai's Chung (pictured above).

One reason, among many, that the United States is the world's leading economy is that it offers a high degree of relative transparency and investor protection (recent woes aside), such that the likes of Jeff Skilling of Enron and Dennis Kozlowski of Tyco go to prison for their crimes. In Korea, by contrast, men like Chung are let off when judges decide that imprisoning him would have an adverse effect on the economy. What results, however, is this "Korea discount," described by Hussain as "the underperformance of Korea's stock market due to its lack of transparency and minority shareholder protection."(183) Hussain further notes that "Korea's notoriously poor ratings in terms of corruption are an indication of the excessive power of a few interest groups." We're thus left with a system that allows convicted criminals like Chung and Kim Seung-youn (above) to walk free, but which hounds foreign investors who've made a local profit.

As Korea's constitution only allows presidents to serve a single five-year term, Lee Myung-Bak will be necessarily limited in what he can accomplish during his time in office. My guess is that, while he may make some headway toward liberalizing the Korean economy, the interests of the government bureaucracy, the conglomerates and the labor unions (a post topic in itself) are so entrenched that five years won't be enough for Lee to do much more than set a tone for the following administration. Even that modest goal, though, will be a battle.

Holy Mancur Olson nightmares, Batman!