The Korea of Tomorrow and Beyond

“The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it...” by Ronald Reagan, 40th President of United States of America

Korea is no stranger to the world and is well known for its vibrant economy. From a country ravished by war and receiving foreign assistance to becoming a donor country. Korea’s achievements are remarkable in the eyes of the world. What makes Korean economy so robust? The answer is foreign direct investments coupled with locally well known conglomerates like Samsung, LG and Hyundai.

During the 1998 Asia Financial crisis, Korea had started to liberalize its economy through various enactments like Foreign Investment Promotion Act to encourage foreign direct investments (FDI). Nevertheless, challenges like the dot.com burst, 9/11 terrorist attack and the late-2000s sub prime mortgage crisis that spreads to most parts of the world including Korea make attracting foreign investments a difficult undertaking.

Korea needs to be less dependent on family controlled conglomerates or Chaebol. With powerful conglomerates around, it is difficult for any new start up investment companies to compete on equal terms. This will not attract new foreign investments due to monopolistic practices of some conglomerates.

The greatest problem faced by new foreign investors besides a lack of information on investment and immigration procedures is the different interpretation on laws by the central and local government. [1] This is true in cases that are related to restriction in certain business practices. Therefore, laws and regulations in Korea should be standardized in line with global practices. That is why political stability and good relationship between central and local governments are paramount. The recent issue of political opposition on tax exemption on Sukuk (Islamic bond) to attract investment is a fine example.

Besides that, when investing in Korea. There is a general lack of clearly defined, English language information on investment and immigration regulations. This makes conducting business in Korea difficult for new foreign investors. Therefore, a one stop website should be made for investors interested to invest in Korea. There should be proper, step by step guidelines for foreign investors and the information should be updated frequently. Also, a one-stop investment Agency in Seoul could be established to coordinate and facilitate fast track approval of applications from investors.

2010 annual Fraser Institute reported that Korea ranked 37th in economic freedom behind neighboring competitors like Hong Kong, Taiwan and Japan, each ranked 1st, 22nd and 24th respectively. [2] Korea is said to lag behind in factors like freedom in government size, labor market regulation and business regulation.

Korea should reduce the corporate tax from the current 22% to enable it to be more attractive for foreign investments - since in Singapore and Taiwan, both taxes 17% while 16.5% in Hong Kong. High tax imposed will not make Korea competitive to foreign investors since the profit will be greatly reduced. By lowering the taxes, Korea will benefit from other spin-off such as more hiring of new employees and a boost in taxable personal income due to it.

A business without workers is like an empty factory, unable to produce goods. Fortunately, Korea is blessed with no shortage of educated workforce. However, labor unions constant demands for pay rise and strikes conducted by the unions instead of proper negotiations mar Korea’s image as an attractive country for investments. Korea needs to have realistic and understanding labor unions. The labor unions need to be flexible in accepting lower pay scale in exchange for shorter work hours or better benefits. Good mutual trust between employers and trade unions is vital.

Ideally, graduates lacking the appropriate skills could be sent to be retrained to cater to the needs of the foreign companies operating here. Fresh graduates are also trained to speak better English, an important prerequisite to a job in most international companies here in Korea.

On the other hand, Korea needs to improve Korea’s branding as a suitable investment friendly country. This means to eliminate corruptions that are plaguing some large Korean corporations and provide adequate facilities for foreigners. They can come in the forms of good education facilities that are appropriate for children of many nationalities and to reduce the language barriers between foreigners and Koreans by providing sufficient support.

In conclusion, Korea with its excellent infrastructure, a competent and diligent workforce should be harnessed and enhanced to complement the attractiveness for foreign investments. If the right policies are in place, Korea will be a force to reckon with in future. Korea must not be complacent with her current economic prowess or be easily satisfied because there are always other countries trying to catch up to take the top spot.

References:

[1] World Bank Report on FDI in Korea (Page 20)

[2] Fraser Institute Economic Freedom of the World 2011 Annual Report (From Page 92)

(This essay was written by me for an economic contest. Sometimes I think I am taking the wrong course in my university, but somehow, I also do like science. I hope I am not the only one still searching for what he is really good at. And I do hope my intuition is right all these years..)