Transcript government - Organization of American States

Key Partners in Public-Private Alliance:
The Case of Korea
Yoo Soo Hong
Director
Institute for Global Innovation Economy (IGIE)
A Presentation at the Conference, “Public-Private Alliance for
New Development Strategy Perspective”, Co-organized by
OAS, GOES, and ECLAC,
San Salvador, El Salvador, January 10, 2011
1
Contents
I.
Introduction and Historical Review
II.
Institutions for Public Private Alliance
III.
Investment and Production
IV.
Trade and Foreign Investment
V.
Technology and International Competitiveness
VI.
Implications
References
2
I. Introduction and Historical Review
3
Basic Facts on Korea
Sea of Okhotsk
Major Statistics
East Sea
• Land Area: 98,480sq km
• National Capital: Seoul
• GDP: $1,012.4 Billion(2010f)
• GDP Growth Rate: 5.9%(2010f)
Pacific Ocean
Yellow Sea
• Population: 48.6 Million
• Global leader in Semiconductors,
Steel, Shipbuilding, Automobiles,
Electronics, Telecommunications
Philippine Sea
4
4
From Ash to a G20 Country
- Korea was one of the least developed countries in terms of industrial
development in the early 1960s. It has been transformed into one of
leading industrial countries in the world during the last 50 years.
1960s
• GNP (1960): US $1.1 billion
- GNP(1960): US $1.1 billion
• GNP per capita (1960): $82
- GNP per capita (1960): $82
Exports (1960):
$33
million
-• Exports(1960):
$33
million
Industry: Plywood
Plywoodand
andwigs
wigs
-• Industry:
-• Diplomacy:
Diplomacy: No
Nomember
memberin
in
major international
major intern’l organizations
organization
Present
• GDP (2010f): US$1,012.4 billion
(14th)
• GDP per capita (2010f): $20,450
• Exports (2010f): $459,803
million (12th)
• Industry: DRAM and CDMA
cellular phone
• Diplomacy: OECD, G20, etc.
5
Transformation of the Korean Economy
Per capita GDP ($)
18,480
18,000
15,000
16,460
10,307
10,000
6,742
5,000
Five year economic development plans
67
1945
1953
Financial
crisis
87
1962
1970
1980
1990
1997
2000
’05 ’06 ’07
6
Changes in Employment Structure
1963
2007
Agriculture
/ Fisheries
7.4%
Service
28.3%
7.9%
Manufacturing
Manufacturing
17.6%
63.0%
Service
Agriculture
/ Fisheries
75.0%
Source : National Statistical Office
7
Changes in Dominant Industries and Top Exports
Textile
Home
electronics
Iron & Steel
Overseas
construction
Home
Electronics
Semi-conductors
Iron & Steel
Automobile
Shipbuilding
Semi-conductors
IT
Automobile
Shipbuilding
Textile
Petro-chemicals
Semi-conductors
Mobile
communications
Digital home
electronics
E-commerce
Bio products
Fine parts
Food
Plywood
Wig
1960
1970
1980
1990
2000
8
Development Stages in the Korean Economy
Stages of Development
1950s
Aid,
Labor
intensive
production
1960s
Imitation
Simple tech.
Import of old
plant/
machinery
1970s
1980s
Heavy industry
R&D
Assimilation
New product
Minor
development
innovations
1990s
R&D intensive
increase
in science
New product
innovation
Traditional
Imitative Catch-up
Innovative Catch-up
Agricultural
Economy
Factor-driven Economy
“Extensive Growth”
Outward-looking
Transition
Invesment-driven
to InnovationdrivenEconomy
Economy
Outward-looking
“Extensive Growth”
2000s
Innovation
frontier
Innovative
Economy
“Intensive
Growth”
9
Regimes and PPP
Authoritarian Regime
Emergency
Period
Regime
(Period)
Characteristics of PPP
Achievements
Problems
First Decade for
ED
◦ 1961-1979 (Park)
Stability Period
Democratic Regime
Emergency
Period
Stability Period
Deregulation and
Opening
◦1982-1996 (Chun,
TWRoh, YSKim)
Asian Financial
Populism
Crisis
◦ 2001-2007
◦ 1997-2000 (DJKim) (DJKim, MHRoh)
World Financial
Crisis
◦ 2008-Present (Lee)
◦ Hierarchical
◦ Directive
◦ Hierarchical
◦ Indicative
◦ Horizontal
◦ Directive
◦ Horizontal
◦ Interactive
High Growth
Liberalization
Restructuring
Balanced Growth
Suppression
Weaker
Government,
Stronger Private
Sector,
Corruptions
Low Growth
Sociopolitical
Conflicts
Structural
Adjustment
◦ 1979-1981(Chun)
10
Stages of Catching-up Industrialization
Preindustrialization
Initial FDI
absorption
Internalizing
parts and
components
Internalizing
skills and
technology
Internalizing
innovation
Creativity
Technology
absorption
Agglomeration
(acceleration of FDI)
Arrival of
manufacturing
FDI
STAGE ONE
STAGE ZERO
Monoculture,
subsistence
agriculture, aid
dependency
Poor
countries in
Africa
Simple
manufacturing
under foreign
guidance
Vietnam
STAGE TWO
Have
supporting
industries, but
still under
foreign
guidance
Thailand,
Malaysia
STAGE FOUR
STAGE THREE
Management &
technology
mastered, can
produce high
quality goods
Full capability
in innovation
and product
design as
global leader
Japan, US,
EU
Korea, Taiwan
Border to Middle
Income Economies
Source: Kenichi Ohno.2009
11
II. Institutions for Public Private Alliance
12
Institutional Mechanisms of PPA
 PPA Device
− High level organization with continuity in political leadership,
political resolve and commitment at top of state apparatus
− Permanent working groups at the bureaucratic level, feeding
into the policy-making process at the higher levels of
government-business interactions
− Consultative/deliberative councils with functional authority over
certain policy areas
− Measurable objectives and targets, clear deadlines
− Selective benefits and rewards
− Substantial contribution by each participant
(Adapted from OECD)
13
Nature of PPA Actors
 Government and bureaucrats
− Autonomy of the state and political elites / private interests and a
vision for economic development.
− Proximity with the private sector.
− Embedded autonomy or connectedness without capture

−
−
−
−
−
An organized private sector and strong business associations
Representativeness
Analytical capabilities and ability to feed the process of policy-making
Capacity of sectoral private regulation and decision enforcement
Willingness to engage in PPA
Benefits expected
(Adapted from OECD)
14
Formal and Informal PPA
 Government – Business Interactions
Formal PPA
Political
Personal Networks
Elites
&
Government
Bureaucracy
Business
Lobbying
Sector
Campaigns
&Elections
Bribing
Source: Adapted from OECD
15
 Development Strategy and Apparatus
- When Korea started its development strategy, the only
productive factor at the disposal of the economy was human
resources, lacked natural resources, industrial facilities,
sufficient land, foreign reserves and business experiences.
- Through heavy and aggressive investments in education,
training and borrowing foreign capital, Korea could overcome
all the barriers, although the development process has not been
so smooth. Human resource was the key factor for the entire
period.
- The Korean success also benefited from effective institutions.
The Korean bureaucracy consisted of high quality technocrats
with strong motivation.
16
 Development Institutions
- There are two kinds of public-private alliance, i.e. the hierarchical
relationship and the horizontal relationship, largely corresponding
to the stage of authoritarian regime and the democratic regime.
- The basic guideline for national strategies and policies is usually
prepared by bureaucrats but the formulation requires the input of
experts from the public sector and the private sector as well.
- The relatively stable political system enabled elite bureaucrats to
react appropriately to policy environments with rapid decision
making and implementation.
17
 Top Leadership Qualifications
- Dynamism of leadership with strong political will, economic
knowledge, effective use of technocrats and advisory
committees
- Direction of strategic goal and creation of focal point in policy
making
- Direct and commit some organizations for taking lead and
responsibility
- Ensuring implementation
- Public Private Alliance for effective cooperation with
businesses
18
 Technocrats
- Work directly under the top leader to realize the national vision.
- Create core policies including overall industrial plan.
- Guide and coordinate ministries for implementing policies.
- Invite businesses, academics, foreign experts and supporters
for cooperation.
- Emphasize economic rationality, counter-balance against intere
st groups and rent seekers.
19
 Ministries
- EDB is the ministry above ministries of planning and
coordination
- Ministry of Commerce and Industry
 Later known as the Ministry of Trade and Industry, or MTI
- Ministry of Finance
 Nationalization of the banks
 Centralization of the financial system
- Day-to-day contact with businessmen who wanted approval for
projects
20
Quality of Bureaucracy in Select Developing Countries
High
Country
Medium
Quality
Score
Country
Low
Quality
Score
Country
Quality
Score
Hong Kong
11.0
Brazil
7.6
Argentina
3.8
India
10.0
Chile
5.0
Republic
Dominican
2.0
Korea
13.0
Colombia
8.5
Ecuador
4.0
Malaysia
10.5
9.0
Guatemala
3.0
Pakistan
11.0
Costa Rica
Côte
d’Ivoire
8.0
Haiti
4.0
Singapore
13.5
Egypt
7.8
Kenya
1.0
Taiwan
12.0
Mexico
8.5
Nigeria
3.0
Source: UNDP. 2010. “State Capacity for Development” (pdf.Google)
21
 Chaebol System
- A conglomerate of many companies and they hold shares in
each other
- Concentration of national economy
- Does not have own financial institution
- Spreads across industries
- Has centralized structure and control
- Tends to be family-based
22
Korean and Japanese Conglomerates
Characteristics
Japanese Zaibatsu
Korean Chaebol
Size
Diversity (Range
of products)
Large/ Low/ Specialized
activities, focus on core
competencies
Large/ High/ Diversified over
many sectors
Ownership
Shareholders from other firms
in Keiretsu
Family ownership and possibly
shareholding by other firms
Management
Professional
Recruited within the corporate
‘family’
Family occupy key positions
Relationships with
other firms
Long team formal relationships
in vertical and horizontal
Keiretsu groups
Adversarial relationships with
other Chaebol, informal
vertical relationships
Relationships with
government
Low/moderate
Industrial development policy
High
Government support and
direction
23
Authoritarian PPA
- Centralized political system: Power concentrated in small elite
- Strong and coherent state
- Effective policy implementation
- Government officials autonomous (shielded from pressures),
competent, professional (corruption minimized)
- Officials executed policies as leadership intended
- Close relationship to business community: Frequent consultation
- Coercive power: Huge armies, massive security apparatus,
repression of dissent
24
Democratic PPA
- Strong, autonomous states make, implement policies favoring
broad categories of population
- Capable, coherent state bureaucracies
- Encompassing business and labor federations
- Parties appeal to broad groups of voters through policies that
aim to promote growth with equity
- Broad-based labor and business federations
- Incentives leaders have to build broad or narrow coalitions of
support
25
Two Kinds of PPA Models in Korea
Hierarchical/Authoritarian
PPA (Phase I)
Government
Government-sponsored
research institute
Government-sponsored
research institutes
Large firms
Experts
Horizontal/Democratic
PPA (Phase II)
Large firms
Government
SMEs
SMEs
Universities
NGOs
Universities
26
 Two Different Phases
- In the earlier stage (Phase-I), a strong government leadership may be
of necessity. In this period, mobilization of resources for rapid
economic growth is the essence of the national development strategy.
- In the later stage (Phase-II) when the economy becomes more
diversified and complicated, the role of the market mechanism and
effective public-private alliance gain the importance.
- Although effective public-private alliance has been shown in the
process of plan or strategy formulation at the national level to a certain
extent, the Korean case shows that the country has not always
achieved a desirable public-private alliance for implementation of
strategies under some regimes.
27
- Under the Phase-I Model the relationship and interactions between the
public (government) and the private (business sector) in Korea were
characterized by a top-down (hierarchical) system where the
government directed and guided major economic agents for the
implementation of Five-Year Economic Plans, which were formulated
by the government with the joint-work of government bureaucrats and
civilian experts.
- The horizontal interactions among major economic players were not
developed and the authoritative government treated the private sector
on the basis of the ‘divide and rule’ method.
- This close relationship between the government and Chaebols in the
Phase-I period of the 1970s, was not a public-private alliance in the true
sense, but an imposed one by the authoritarian government.
28
- Under the Phase-II Model, the horizontal relationship between the
major players is expected. However, the ideal cooperative horizontal
relationship has not been fully developed yet.
- Today the scale of the Koran economy and the diversity of the Korean
industries do not make it easy to form such an ideal partnership. There
is a big difference between Korea and Japan. Japan still maintains its
world-famous ‘consensus-making’ practice between the government
and the business sector.
- The Korean economy, especially the trade sector, is still dominated by
Chaebols and large enterprises. Although SMEs are gaining their
importance and strengthening competitiveness, they are not the
leaders but followers.
29
Major Players in the Korean Economy (2007)
Government & Public Sector
President
Committees & Affiliates
Prime Minister
Committees & Affiliates
Cabinet & economic
Policy Coordination
Council
MOFE
MOCIE
GSRIs (1)
MOST
SMBA
GSRIs (2)
KOTRA
KOTEF
KITECH
30
(Continued)
Private Sector
FKI
KCCI
KITA
Chaebols
& Large Firms
K-Biz
SMEs
Industry-Specific
Associations
GTCs
Academia &
Research Institutes
NGOs
31
Conceptual Framework of PPA in Korea
Government
People
F
Ministries and Bureaucrats
o
----Interface/Interactions-----
r
e
i
g
M
Profit
Organizations /
Enterprises
Industrial Associations, etc.
Non-Profit
Private
Organizations
e
d
i
a
n
32
Government-Business Alliance under Park
Administration

President
Economic

Secretariats

State Council
Chaired by Deputy PM
Five-year plan Economic Minister’s

Council
KDI,
EPB
Etc.
Deputy PM
Govt.-Business
Meetings:
- Development planning
- Public investment planning
- Export promotion
- Budget
- Economic briefs
- Monitoring

Direct presidential
control over
economic policies
EPB as super-ministry
Policy research
institutes (KDI, etc.),
providing analysis for
economic policies
Govt.-business: very
close and
cooperative relations
Performance-based
rewards and penalties
- HCI drive, etc.
- Aid management
Ministry
MTI
Ministry
Source: Adapted from Kenichi Ohno. 2009.
33
III. Investment and Production
34
Working of the Outward-looking
Development Strategy
Economic growth
Foreign Loans
(Economic aids/external debt)
Manufacturing
processing
Export promotion
Private
enterprises
Financial tax support
Capital good imports
Government
Raw material imports
Foreign technology
imports
Source: KDI
Technology
development
Well-educated labor force
35 35
Korean Economic Development Model in the 60s
Capital financing
through foreign loans
Private enterprise
encouragement
Authoritative government
in the center of development
Export Promotion
motivated people
High savings rate
Intervention
Technology catch-up
Well-educated
work force
36
Phase – I Model
Government
Financial
regulation
Industrial
Policy
Finance
Labor
Chaebols
Financial
support
Suppressed
labor movement
Labor
input
Inflationary
enforced
savings
Low
wage
National mobilization
Source: Lee, Jong Won. 2004.
37
The Role of the Government in the Phase-I Model
Concentration of capital ownership
and management by the government
Strong control of the government over
financial institutions, resources allocations,
wages and prices
Government-led economic development strategies
: Export-oriented industrialization
: Growth first, distribution later
: Leadership in tech capability building
Source: Lee, Jong Won. 2004.
38
Washington Consensus vs. Industrial Policy
 Washington Consensus
− Highly skeptical of ‘infant industry’ protection
− Highly skeptical of government’s ability to successfully ‘target’
industries to support
− Economic development is best left to international market forces
following comparative advantage
− Market forces will operate best in climate of private rights for
business
− Highly skeptical of bureaucratic discretion
 Industrial Policy
− Strong economic management and market intervention by the
state
− Maintain national economic autonomy
− Move up ladder from light to heavy industry
− Decrease reliance on foreign technology
− National self-reliance
− Build national wealth through exports
39
Industrial Policy Means

−
−
−
−
Chaebol System
Scale
Diversification
Know-how, experience, capability
Ease of government control

−
−
−
Finance
Government control of banks (borrowing)
Government control of access to capital markets (equity finance)
Foreign exchange controls to control inward and outward capital flows
(ensures savings pool; limits foreign borrowing)
− Foreign Investment controls (foreign equity investment severely limited)
40
Public-Private Alliance for Investment and Production
President
Examine & discuss basic
policy & direction
Ministries
Economic Cabinet
Presidential
Meeting
Secretariat
EPB
Others
MTI
Examine & discuss detailed
measures & actions
Federation of
Korea Industry (FKI)
Bridge between government
and business sector
Industrial associations
and supporting organization
Textile, Food, Automobile, Iron & Steel, etc.
Information sharing,
Specific action formulation,
etc.
Foreign
market
Domestic
Related
market
institutions
41
Background and Characteristics of Chaebols
 Background
- Chaebols are on offspring of economic and industrial strategies
under the CME (Centrally Managed Economic) system in the
President Park’s era.
- Chaebol is a business group of large companies which is owned
and managed by family members or relatives in many interconnected business areas.
 Characteristics of Chaebols
- The Chaebol system differs from US conglomerates, Japanese
Keiretsu or German financial clique.
- Chaebol system may be regarded as a private replica of the
central government in Korea.
42
 Chaebol and the Korean Economy
-
Chaebols are characterized by ambitious and aggressive
entrepreneurship, paternalistic leadership and centralized planning
and coordination.
-
Chaebol had preferential financing for private investment. Often it was
ended up with over-investment in some industries (electronics,
automobile, steel) and large amount of debt (high leverage ratio). It was
possible because the State was in control of banks, and Chaebol could
access to financial resources whenever they needed.
-
The economic growth was designed by the State by way of industrial
policy (‘Five Year Economic Plan’ 1962-1991).
-
As a result, Korea’s growth rate had been extraordinary (8% per year
on average until the 1997 economic crisis). On the other hand, gains
from growth accrued to Chaebols. Labor unions and social movements
were severely repressed.
43
Phase – II Model
Government
Foreign
Capital
Coordination
Investor-oriented governance
Financial support
Finance
Labor market
Labor
Chaebol
Market expansion
Flexibility
Economic liberalization and opening
Source: Lee, Jong Won. 2004.
44
The Role of the Government in the Phase- II Model
Reducing government intervention in the market
and private sector
Liberalizing the economy and coordinating
Government-supported, innovation-oriented
development strategies
: Innovation-oriented industrialization
: Improving business environment and
infrastructure
Source: Lee, Jong Won. 2004.
45
Transition in the 1980s
‒ There was a substantial change in the government industrial and
technological policy principles. As the government liberalized the
industry and economy, the government refrained from direct influence
of industries but used indirect support.
‒ The Korean industrial structure itself was moving from labor-intensive
to R&D-intensive one.
‒ Firms were ready to respond to these circumstances due to already
accumulated experiences and technological capabilities during the
1960s and 1970s.
46
IV. Trade and Foreign Investment
47
Export-Oriented Industrialization
- Korea's industrial development has been achieved through exportoriented strategies.
- During 1960s and 1970s, the period when Korea accomplished
the development of major industries, export growth outpaced GDP
growth
Rapid Increase of Exports’ Share in GDP
(%)
1960 1965 1970 1975
3
9
14
24
1980
28
1985 1990
32
26
1995
24
2000 2005 2010 ͤ
34
36
45
48
Public-Private Alliance for Trade
President
Examine & discuss basic
policy & direction
Ministries
Economic Cabinet
Presidential
Meeting
Secretariat
MTI
Monthly Export Promotion Conference
Information sharing,
specific action formulation,
Federation of
Korea Industry (FKI)
Others
Examine & discuss detailed
measures & actions
Bridge between government
and business sector
etc.
Chabols
SMEs
Foreign
market
Domestic
Related
market
institutions
49
Monthly Export Promotion Conference
 Practical Forum for Trade Policy Presided by the President
‒ Established in December 1962. The most important
administrative support mechanism for export promotion
‒ Attended by major government high-level officials (Ministers,
etc.), leaders of public organizations, civilian experts, leading
exporters (firms) and industrial associations
 Effects of the Conference
‒ Enhancing the general public’s awareness of the importance of
‒
‒
‒
‒
export
Problem shooting, especially directed by the President
Sharing information and visions among participants
Encouraging leading exporters and inducing cooperation of the
private sector
The conference made great contributions to the high export
performance during the Phase-I period.
50
Monthly Export Promotion Conference Scenes
51
List of Participants for the
Third Monthly Export Promotion Confernce in 1967
The List of Attendants
The Deputy Prime Minister, Minister of Home Affairs,
Minister of Finance, Minister of Health & Welfare,
Minister of Transportation, Minister of Construction, 2
Ministers and Ministers without portfolio, Vice-minister of Foreign
Affairs, Vice-minister of Commerce and Industry, ViceViceminister of Public relations, 3 PACST(Presidential
ministers
Advisory Council on Science and Technology)
Central
members, Commissioner of National Tax Service,
Government
Chief of Korea Forest Service, and etc. (Total18)
2 Directors from Ministry of Foreign Affairs, 4
Directors from Ministry of Finance, 1 Director from
Directors and National Tax Service 6 Directors from Ministry of
Commerce and Industry, 1 Director from Ministry of
others
Agriculture, 1 Director from Ministry of Maritime Affairs
& Fisheries, 2 Secretaries from Prime Minister (17)
Governor of BOK, Governor of KDB, President of
KEB, President of Industrial Bank Korea, CEO of
Financial institution
Federation of Agricultural Credit Cooperatives, CEO
of Federation of Fishery Credit Cooperatives (6)
52
(Continued)
State-owned
institutions, business
associations
Academia
Law makers and
Prosecutors
Representatives from
businessmen
Regional
Representatives
President of KOTRA, CEO of KITA, Chairman of KCCI
(Korea Chamber of Commerce & Industry), Vice
chairman of FKI (Federation of Korean Industries),
Executive Vice Chairman of KITA, Chairman of Korea
Tourism Organization, CEO of Korea Express, CEO of
KOSIC (8)
3 Professors
Director from the ruling party, Chairman of the
Commerce and Industry Committee, 1 Law maker, 1
Prosecutor (4)
CEOs or presidents from leading companies (12)
Mayor of Pusan, Governor of Kyungsang-Namdo, etc.
10 chiefs in the region Pusan and Kyungsang-Namdo
8 professors in the region Pusan and KyungsangNamdo
Source: Y H Rhee. 2006. "Economic Policy Coordination and Assessment: Monthly Economic Trends Meeting and Monthly
Export Promotion Meeting“.
53
Chaebols and General Trading Companies
 Background
- Chaebol is a business group of large companies which is owned and
managed by family members or relatives in many inter-connected
business areas.
- Chaebols are characterized by ambitious and aggressive
entrepreneurship, paternalistic leadership and centralized planning and
coordination.
 General Trading Companies (GTCs)
- The prioritized mission of GTCs was to expand Korea’s exports,
especially of heavy industry products. In addition, it was expected to
attain economies of scale in the world market, specialize enough in
exportation to gain international competitiveness, be self-sufficient and
independent of the government, and capable of overseas marketing.
- The GTC system had the effect of institutionalizing export activities in
Korea.
54
Exports by Small and Large Firms
(Unit: million US dollars, %)
2002
2003
2004
2008
Total Exports
162,471
(100.0)
193,817
(100.0)
184,883
(100.0)
422,007
(100.0)
SMEs
68,309
(42.0)
81,699
(42.2)
72,208
(39.1)
163,739
(38.8)
Large Enterprises
94,053
(57.9)
112,015
(57.7)
112,460
(60.8)
258,268
(61.2)
Note: The numbers in the parenthesis are the shares in total exports
Source: The Export-Import Bank of Korea
55
Export PPA of KOTRA
Ministry of Knowledge Economy : Government support
Global enterprises & Korean enterprises, universities, institutes: Alliance
participants
KOTRA: Organizer and mediator
Ministry of
Knowledge
Economy
 Align with strategic partners
 Expand R&D capability
 Secure advanced technology
 Share global firms’ know-how
 Develop new technology & product
 Create new market
Global
Enterprise
Korean enterprises,
universities, institutes
 Organize the working group
and management project
KOTRA
 Support Export &Foreign
Investment Promotion
 Search for promising
business partners
V. Technology and International
Competitiveness
57
Characteristics of the Innovative Catch-up Period
(1980s-1990s)
 Background
‒ The world economy in the earlier part of the 1980s was in recession
and developed countries became protective and pressed developing
countries to strengthen IPRs. The Uruguay Round also pressed
developing countries to open their domestic markets.
‒ Under the changed world economic environment, Korean firms realized
the need for their own technological development and innovative
capability.
 The Role of Major Players
‒ The government focused on establishing IT infrastructure and
coordinated other players. In the 1990s, the government strengthened
national R&D programs aiming at making the country one of the
leading countries in innovation in the 21st century. For this, the
government promoted technology-intensive industries such as IT. The
‘Industrial Development Act’ was introduced in 1986.
58
‒ The government deregulated technology transfer from foreign sources
and offered many supportive measures such as tax exemptions and
preferential finance.
‒ The 1980s is the decade for Korean large enterprises to have achieved
self-sufficient technological capability building and innovation
capacity, as demonstrated by DRAM, CDMA, and etc.
‒ In addition to own R&D, firms diversified the channels of technology
transfer.
‒ By 1996, more than 2,000 company research labs were established.
 Characteristics
‒ This period is characterized by true emergence of the private sector as
the innovation leader in Korea, replacing or reducing the government’s
leadership.
‒ The method of technological innovation became diversified from the
imitative catch-up to the innovative catch-up.
59
Korean Electronics Leading the World Market
(% in the world)
Memory
(45.0%)
CP
(28.8%)
TFTLCD
(41.3%)
DTV
(13%)
MP3
(20%)
Contribution to the Korean economy by share:
GDP (14%) and Export (30%)
60
Ratio of R&D to GDP
R&D Expenditure by Source
(2006)
%
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.0
R&D Expenditure by Organization
%
Person
Researchers by Degree by
Organization
61
Strategies for Securing National Competitiveness
 Acquisition of World-top-class Technologies
- Korea should pour more R&D efforts to core technologies and emerging
technologies on the basis of strong basic science
 World Class Education for HRD
- For this and stronger international competitiveness, the Korean education
system should be reformed as quickly and broadly as possible

Innovation-driven Economy and Innovation of NIS
- Through a balanced and efficient NIS, Korea should realize
an innovation- driven economy ahead of China
 Active Opening of the Economy
- All these require active opening of the economy to the world.
The whole country should be a ‘special economic zone’
62
Interactions in a National Innovation System
Knowledge
University
Researchers
Funding
Funding
Research
Institutes
Knowledge
Indigenous
Knowledge
Base
Funding
Global
Knowledge
Base
Grants
Technology
Government
Graduates
Grants
Knowledge
Incentives
Tax
Industry
Source: Suh. 2000
•
•
•
Industrial & Technological Deepening
Transition to Knowledge Based Economy
Sustainable Economic Growth
63
New Organization of NSTC (2010)
NSTC (National S&T Council)
Chairman: President
Vice Chairman: Ministry of ES&T
Coordinator:
Secretary for ES&T
Operational Committee
Chairman: Secretary for ES&T
Social Infra Tech
Advanced
Fusion Tech
National
Initiative Tech
Big Tech
Basic
Industrial Tech
Five Specialized Committees
64
ST Framework Planning System in Korea
National Science and Technology Council
Meeting of Ministries
Related to
Framework Plan
Framework Plan
Committee
Advisory Group
General public, Media, etc.
Coordinating Ministry (MOST)
Framework Plan
10 Sub-Committees
Associations and
Related Organizations
65
Public-Private Alliance for Technology
President
Examine & discuss basic
policy & direction
Ministries
Economic Cabinet
Presidential
Meeting
Secretariat
NSTC
Others
MOST, MOT
Examine & discuss detailed
measures & actions
Quasi-governmental organizations
Bridge between government
and business sector
Industrial associations
and supporting organization,
Research institutes
Information sharing,
specific action formulation, etc.
Foreign
market
Domestic
Related
market
institutions
66
Research Consortium
 Government Role in Research Consortium
‒ Joint R&D in the form of a consortium of the government, GRIs,
and the private sector (large companies) was the most
important and effective mechanism in high-tech development in
Korea such as TDX, D-RAM, CDMA Mobile Phone, Digital TV,
and Wibro.
‒ GSRIs especially played the role of monitoring foreign
technology trends and mediating original sources and research
participants.
 Degree of Government Interventions
‒ Government intervened and led research consortia when the
technology is under substantial uncertainties and risks.
‒ However, for the industries and technologies under slow
innovation, the government only took the role of protecting the
industries (e.g. automobile, electronic, PC).
‒ For the mature stage of a new product, firms could take care of
further (process) innovation within their capacity.
67
Korea Today
 IT Industrial Power: Strong Engines for nation’s development
• Digital Multimedia Broadcasting
• Broadband Internet
• Wireless Broadband Internet
• HD/LCD/3D TV
• IT Application to Automobile, Shipbuilding & Machinery
 Leading Industries
- Electronics, Semiconductors, Automobile, Shipbuilding,
Construction, etc.
 Korea’s World Class Enterprise
•
•
•
•
•
SAMSUNG
HYUNDAI
LG
SK
POSCO
68
Samsung: New Management Initiative and Structure
 1993 Declaration of ‘New Management Initiative’ by Chairman Lee KunHee
“Change everything except your wife and kids!”
“Quality first”
“Secure and train high caliber manpower”
 Spans 58 countries
 Economic Crisis and Aggressive Management
“Invest in crisis”
 Five Business Divisions:
• Digital Media
• Semiconductor
• Telecommunications
• LCD
• Digital Appliances
69
Comparison of the Operating Profits of Samsung and
Japanese Electronics Companies (Jul-Sep, 2009)
(Yen Billion)
Source: Compiled from Japanese Newspapers
70
SME Innovation
 The Achilles´ tendon of the Korean Economy
- The relative weak innovation capacity of SMEs in Korea becomes the
serious challenge to the Korean economy for sustainable growth.
- Such public and private organizations as Small and Medium Business
Agency (SMBA), KAITECH and large firms have been helpful for
enhancing innovation capacity of SMEs with limited effects.
 Supports for Technology Development of SMEs
- Promotion of ventures by a special law.
- Most of government supports for industrial R&D, HR training and
exports facilitation have been directed to SMEs.
- Cooporation between large firms and SMEs is especially encouraged by
the government. E.g. Fair Competition Law.
71
 Technological Capability Building
- Technological capability building requires proper institutional
development in terms of laws and regulations, establishment of
research institutes and investment in R&D.
- National innovation system itself should be innovated over time to
strengthen the coordination mechanism.
 Innovation
- The government can initiate joint R&D consortia, with companies,
universities and research institute for target technology development.
- A stronger triangular cooperation among the industry, university, and
research institutes is the essence for innovation. An extension of this
is the development of innovation clusters.
- Higher education should be strengthened for the supply of R&D
manpower.
72
Supporting Institutions and Incubation Centers
National Economic Development through
Regional and national Innovation systems
Ministry
Knowledge
of Knowledge
Ministry of
Economy
(MKE)
Economy (MKE)
Korea Venture
Business
Association
Infrastructure Building
Programs for High-tech
Based Startups
Korea Credit
Guarantee Fund
KIBO Technology
Fund
Small and Medium Business
Administration (SMBA)
Institute of Korea Entrepreneurship
Development (IKED)
Special Programs
for Lab
Based Startups
Idea Development
Programs
Local
Governments
Local Governments
Korea
Technopark
Association
Tomorrow’s Tech.
Based Entrepreneur
Development
Programs
Angel and
Venture Capital
Incubation Centers
Banks
Universities & Research Institutes
Management &
Consulting Services
Legal Services
BI-Net
Cobian
Changup
Net
Source: Bong Jin Cho. 2010. “A Korean model of Incubation”.
73
VI. Implications
74
Economic Performance of El Salvador
- El Salvador has been doing very well and may be called
‘a Central American Tiger’
2009e
2008
GDP (US$ billion)
2010f
22.3
22.3
21.9
GDP per Capita (US$)
3,607
3,430
3,520
Real Growth Rate (%)
2.4
-3.5
1.5
Inflation Rate (%)
5.5
-0.2
2.5
Exports (US$ million)
4,611
3,861
4,303
Imports (US$ million)
9,004
6,706
7,605
Foreign Exchange
Reserves (US$ million)
2,545
2,986
3,491
Foreign Debt
(US$ million)
8,846
9,566
10,243
Source: DANE, Banco de la Repulica
75
Five Findings
 Every country is unique, and should find most relevant strategies.
 Visionary, practical and strong leadership with effective
institutions for public-private partnership in every field is needed.
 Development “by the people, of the people, and for the people”:
Human beings are the center of everything.
 A crisis can be a “blessing disguised”.
 There is no king’s road in learning and technological capability
building.
76
Highlights and Implications of the Korean
Case
 Performance of the Korean Economy
‒ Even if a country is not endowed with sufficient resources for
economic growth, the country still can successfully grow by
concentrating and fully utilizing its own limited resources with an
innovative strategy.
 Political Regimes and Achievements
‒ The characteristics of political regime and leadership are crucial for
economic development.
‒ Institutional reforms and policies, including innovation and export
promotion, require a committed leadership and efficient bureaucracy to
be successful.
‒ Especially the people should be convinced that their efforts will be
properly rewarded if they follow the government’s guide and policies.
77
 Operation of the Economy and the Different Stage of Economic
Development
- In the earlier stage, a strong government leadership may be of
necessity. However, in the later stage when the economy becomes
more diversified and complicated, the role of the market mechanism
and the public-private alliance gain the importance.
 Success Factors
- Dynamism of leadership with a vision and strong political will,
economic knowledge, effective use of technocrats
- Efficient bureaucracy
- Entrepreneurship and competitive private sector
- If the people of a country can share the same vision and the trust
between them is strong, the chance of trade and innovation is high.
Latin American countries need to harmonize the interests of social
classes and ethnic groups.
78
 Innovating the System and Institutions
− Economic system and institutions cannot be reformed and innovated
overnight. Reforms and innovation require patience and consensus
building, allowing institutional and policy experiments. High quality of
bureaucrats and experts from the private sector including think tanks
are one of the success factors.
− Each country should find the best and own way to deal with these
factors since there does not exist exactly the same situation as other
countries.
 The Role of Industrial Association
− Industrial associations play important roles for industrial development
in general and export promotion in particular. The most important role
is information sharing. In addition, these associations are the bridge
linking the government and the industry for effective public-private
Alliance.
79
References
Cho, Bong Jin. 2010. “A Korean Model of Incubation”. (pdf. Google)
Hong, Yoo Soo. 2010. Private- Public Alliances for Export Development:
the Korean Case. CEPAL.
Lee, Jong Won. 2004. The Korean Economy and Its Prospects. Seoul: Haenam.
OECD. A Document on PPD (pdf. Google)
Ohno, Kenichi. 2009. “Avoiding the Middle Income Trap.” VDF/GRIPS (PPT.
Google)
Rhee,Y H. 2006. "Economic Policy Coordination and Assessment: Monthly
Economic Trends Meeting and Monthly Export Promotion Meeting“. (PPT.
Google)
Suh, Joonghae. 2000. “korea’s Innovation System”. UN University INTECH.
UNDP. 2010. “State Capacity for Development” (pdf. Google)
80
Muchas Gracias!
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