Korea will certainly fail to stand on its own feet economically and remain a "subcontractor nation" to the United States and Japan for another 100 years, a reputed Japanese management expert asserted. In what appears to be one of the most cutting yet penetrating assessments of the Korean economy, renowned management strategist Kenichi Ohmae said that Korea is hindered by a host of structural problems. He gives as examples, the absence of future-oriented leaders and industrial policies, over-dependence on the Japanese economy and reform-shy chaebol. Rather than emerging as an industrial powerhouse in the new millennium, Korea may slip back into a crisis probably from next year, unable to overcome shocks from market opening to Japan and other foreign competition and chaos from President Kim Dae-jung's lame-duck phenomenon."

The latest signs of economic turnaround in Korea are actually misleading," said Ohmae in his contribution to the Tokyo-published biweekly magazine Sapio." The recovery is attributed to Seoul's obedience to the U.S. hegemony and halted attacks from foreign currency speculators, not the results from improvements in the economic fundamentals." Worse yet, Korea's trade surplus with the world will not be sustainable, as the economy's internal mechanism erroneously calls for rising income to lead to currency appreciation and then weakened export and national competitiveness.

Speculating on reasons for the structural problems, he declared that Korea's biggest weakness lies in its industrial resemblance to Japan and its underdeveloped parts-manufacturing industry. He called Korea a "little Japan," noting that 99 percent of the two countries' export items are in direct competition in overseas markets. Unfortunately, however, Korean makers of household appliances, automobiles, semiconductors, office automation equipment, ships, steel and other mainstay goods are too heavily dependent on Japan for the supplies of key parts and know-how, meaning that a weakened yen will cut deeply into Seoul's competitiveness.

Nevertheless, President Kim, entering 17 months in office, has failed to work out measures to overcome such structural problems so far. "One of the most important qualifications required of a Korean President is the ability to see ways to differentiate Korea's industrial structure from that of Japan," he said. "Korean conglomerates frequently brag about making world-class TVs, for instance. However, the hardcore parts are being imported from Japan. "Excessive dependence on Japan-made key parts and machinery goods for Korea's output of export goods will continue to undermine their added values. Eventually, Korea will end up trapped in a catch-22 situation, where the harder it strives to expand exports to the U.S. market, the bigger trade deficits it will run with Japan, he quipped. With the national economy mired in such a dilemma, though, nowhere in the nation's political and business circles are leaders to be found with visions for long-term industrial policies.

Conglomerates are preoccupied with expanding their turnovers, turning a blind eye to parts development, while the government is only interested in the trade-surplus figures." Unless such attitudes are changed, Korea may not escape from its status as a subcontractor to U.S. and Japanese firms for another one hundred years. Thus, the next-generation Koreans will be constantly concerned about the movements in the foreign exchange rates," Ohmae said. He suggested that the only way out of the industrial dilemma will be to foster differentiated industrial structures from Japan, producing what Japanese firms are not manufacturing. But he lamented that Seoul's efforts at independent industrial hegemony will take more than 10 years to materialize, citing Koreans' traditional disregard for engineers. A similar attempt to specialize in software, service and information industries will also be hampered by the lack of mathematical and English infrastructures matching those of the United States and India.

Ohmae said that the direct cause for the outbreak of Korea's crisis in late 1997 was the foreign exchange shortage at the central bank, with the indirect cause being the country's heavy borrowing from the U.S. institutions. Washington's efforts to pressure the IMF into salvaging the Korean economy were mainly aimed at rescuing U.S. banks with heavy exposure to Korea. U.S. institutions also made enormous money in the process of dismantling the Korean chaebol and selling off chaebol firms to foreign investors. As a result, Korea is now left with debt-laden, nonviable chaebol firms. The gradual market liberalization in coming years, as stipulated in a written promise with the IMF, will exert devastating effects on the overall sectors of the Korean economy, he warned.
 

The Korea Herald 04/08/1999