Lessons from Korea

Last month I went back to Seoul after 26 years. The city is transformed and so is the economy.

In 1984, when I visited the export processing zones, Masan and Iri contributed at least 60 percent of South Korea’s total exports. POS - CO had been e s t a b l i s h e d as a public sector company to take on established global giants and, despite having to import 100 percent of its raw materials, out-competed all of them by relying on the latest technology, economies of scale and above all, sheer, hard work and dedication. At the same time, Korea was reaching full employment levels by furiously expanding labor-intensive exports. The question arose in my mind, “If Korea could successfully combine the latest technology with large-scale employment generation, could we do it as well?”

The most striking memory from 26 years ago is of having lunch with the president of the Federation of Korean Industries, the organization of the Korean chaebols, who, like the Japanese zaibatsus, worked closely with their respective governments to create industrial juggernauts. I asked the president, a wise old man, most gracious in his hospitality to a young researcher, what the main lessons were for India from the Korean experience in industrialization. He gave me three nuggets that have remained with me since.

First, he said, countries and/ or their firms cannot succeed in a fiercely competitive global economy (this was in 1984) unless industry and government worked closely together to achieve national goals.

Second, developing countries should not be unduly concerned about national pride and national brands as long as they can generate the necessary employment for a young workforce by successfully attracting the necessary technology and foreign direct investment (FDI ). But they should not forget that both regaining national pride and building national brands are worthy goals to be achieved over time. The Koreans in their pragmatism had handed over Masan largely to firms from Japan, a country that had colonized Korea not so long before and had broken down the gate of their emperor’s palace so that it did not face in an auspicious direction. (Quite rightly, the Koreans are restoring it to its original location ahead of the G-20 Summit in November.)

Third, remember that any country is only as good as its human capital. He cited with approval the efforts of his friend Prof. Choi, the founder of the Korea Advanced Institute of Science and Technology (now KAIST ) to bring Korean researchers back from the United States by paying them higher salaries than were being paid at that time either to senior bureaucrats or corporate managers. And as we know, Prof. Choi succeeded brilliantly. Korea has emerged as a leader in several frontline technologies and now competes through product innovation and no longer as a low-cost producer.

Have we learned these simple lessons in India? I am afraid not. The government and industry, though not mutually suspicious anymore, still do not seem to work together with a common national purpose. For example, maximizing employment generation can be a common goal for the government and industry. In this case, special economic zones, which have already generated large-scale employment, will hopefully not remain controversial. The criterion for making land available on a priority basis should then become a minimum number of jobs generated per unit of land. All restrictions, except on strategic grounds, would be removed on FDI when it is seen to generate employment.

There is, of course, give and take between the government and industry. But it is often non-transparent and perceived to be largely for private, not national, purposes. This can change if industry decides to make the government accountable and not continue to act as a supplicant seeking favors. But for that, industry has to achieve even greater social legitimacy by paying its taxes honestly, not cutting regulatory corners, and generating employment and lowering prices when it can. It has to be seen by the people as working for national goals and not only for maximizing personal consumption and ostentation.

Unlike Korea, we have still not recognized the importance of attracting back our human capital. Instead, we celebrate whenever a person of Indian origin earns global recognition. This is a loser’s pride! Given that Indian higher education system is hardly producing any globallycomparable researchers, the only way forward is to attract talent back from abroad as seed capital. Indian industry can play a major role by letting charity begin at home rather than donating millions of dollars to foreign universities.

Moreover, it should be recognized by all those concerned that talent will not be attracted only because of a love for the motherland or for a possible entry into policymaking, as increasingly difficult as it is. Researchers need living and working conditions comparable to the ones they are giving up. It is time we paid attention to these issues. For once, we can learn from Pakistan, where in 2006, the government announced education pay scales that, in purchasing power parity terms, are better than those obtained in most advanced economies.