Tim’s East Asian Diary: Part One – South Korea
I am in Seoul, the capital of South Korea, at the beginning of a two-week trip to study industrial policy in China and wider East Asia. Regular Touchstone readers will remember a previous report, ’German Lessons’ which, as the title suggests, sought to understand if there are aspects of Germany’s industrial policy that the UK would do well to emulate. This trip is for a report which will ask: how do we explain the rapid growth of China, as well as the “Four Little Dragons”, those dragons being Taiwan, South Korea, Singapore and Hong Kong; notwithstanding that they are developing countries, are there lessons for the UK; and how should the UK, whose expressed desire is to rebalance its economy after the financial crisis, respond to the growth of the East?
From here, I will go to Beijing and then to Hong Kong, from where I can go back into mainland China to visit the mighty industrial districts of Shenzhen and Guangzhou, on the Pearl River Delta. As the title of this post suggests, I hope to blog along the way. I won’t blog much: I might set out some of the questions that I am thinking about as I go, and include some reflections and anecdotes, but I won’t be giving away the main recommendations from the report. For those, you will need to wait until later this year or early next, when the report is published.
And so to Seoul. South Korea is a high-tech, high-growth and high-income economy. Manufacturing accounts for 25% of GDP, with electronics, shipping and automotives dominating the sector. South Korea’s most famous company is, of course, Samsung, the largest electronics company in the world, with a turnover larger than Apple, Google and Microsoft combined. 57% of South Korean GDP is accounted for by exports. It spends five times as much on research and development as most European nations and has the world’s fastest internet bandwidth.
This raises my first question: could a Western country create a ‘Samsung’? Or, to put it in laissez-faire parlance, could a ‘Samsung’ happen in the UK, as result of market forces?
The answer is probably not. Samsung is a chaebol, a type of conglomerate that, among other things, was guaranteed bank loans. Chaebols were central to South Korea’s rapid industrialisation. No Western country would build up a company in the way that South Korea, a developing country, built up Samsung. Then again, Volkswagen aims to become the largest motor manufacturer in the world by 2018 and, when I last checked, it was on course to do so, meaning that the West can have large, world-renowned manufacturers, even in the era of Asian growth.
Finally, the OECD expects South Korean GDP growth to average 2.7% from 2011-20, but dropping to just one per cent from 2031-40, due to demographic ageing (South Korea will soon be one of the world’s fastest ageing populations), over-reliance on large conglomerates (presumably including Samsung) and weak competition in the SME market.
That strikes me as pessimistic. First, even if correct, South Korea has 18 years to act if those forces really would bear down on GDP, as the OECD projects, and given the country’s speed of action up until now, I wouldn’t bet against it. Second, whilst I accept that too much emphasis on too few large companies can create distortions and can crowd-out new market entrants, too much emphasis on SMEs (in my view, part of the British problem) leads to the loss of large employers, providers of jobs and skills, especially in working class communities, thereby leaving us with too much low-paid, low-skilled employment, which the government no longer has the cash to underpin.
I think this is going to be interesting…