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.
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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
Contents
I.
II.
III.
IV.
V.
VI.
Introduction and Historical Review Institutions for Public Private Alliance Investment and Production Trade and Foreign Investment Technology and International Competitiveness Implications References
I. Introduction and Historical Review
3
4
Basic Facts on Korea
Sea of Okhotsk Major Statistics Yellow Sea East Sea Pacific Ocean •
Land Area: 98,480sq km
•
National Capital: Seoul
•
GDP: $1,012.4 Billion(2010 f )
•
GDP Growth Rate: 5.9%(2010 f )
•
Population: 48.6 Million
•
Global leader in Semiconductors, Steel, Shipbuilding, Automobiles, Electronics, Telecommunications
Philippine Sea
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
•
major international organization
• • • • •
Present GDP (2010 f ): US$1,012.4 billion (14 th ) GDP per capita (2010 f ): $20,450 Exports (2010 f ): $459,803 million (12 th ) Industry: DRAM and CDMA cellular phone Diplomacy: OECD, G20, etc.
Transformation of the Korean Economy
Per capita GDP ($)
18,000 15,000
16,460 18,480 10,307
10,000 5,000
1945 67 1953 87 1962 Five year economic development plans 1970 1980 6,742 Financial crisis 1990 1997 2000 ’ 05 ’ 06 ’ 07
Service
28.3%
Changes in Employment Structure
1963 2007
7.4% Agriculture / Fisheries Manufacturing 17.6%
7.9%
Manufacturing
63.0%
Agriculture / Fisheries Service 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
1950s
Development Stages in the Korean Economy
1960s
Stages of Development
1970s 1980s 1990s 2000s
Aid, Labor intensive production Imitation Simple tech.
Import of old plant/ machinery Heavy industry Assimilation Minor innovations R&D New product development R&D intensive increase in science New product innovation Innovation frontier Traditional Agricultural Economy Imitative Catch-up Factor-driven Economy “Extensive Growth” Outward-looking Innovative Catch-up Economy Outward-looking Innovative Economy “Intensive Growth”
Regimes and PPP
Regime (Period) Authoritarian Regime Democratic Regime Emergency Period First Decade for ED
◦ 1961-1979 (Park)
Structural Adjustment
◦ 1979-1981(Chun)
Stability Period Deregulation and Opening
◦ 1982-1996 (Chun, TWRoh, YSKim)
Emergency Period Stability Period Asian Financial Crisis
◦ 1997-2000 (DJKim)
World Financial Crisis
◦ 2008-Present (Lee)
Populism
◦ 2001-2007 (DJKim, MHRoh)
Character istics of PPP
◦ ◦
Hierarchical Directive
◦ ◦
Hierarchical Indicative
◦ ◦
Horizontal Directive
◦ ◦
Horizontal Interactive Achievements High Growth Problems Suppression Liberalization Restructuring Weaker Government, Stronger Private Sector, Corruptions Low Growth Balanced Growth Sociopolitical Conflicts 10
Stages of Catching-up Industrialization
Pre industrialization Initial FDI absorption Internalizing parts and components Internalizing skills and technology Creativity Internalizing innovation Technology absorption Agglomeration (acceleration of FDI) Arrival of manufacturing FDI STAGE TWO STAGE ZERO Monoculture, subsistence agriculture, aid dependency STAGE ONE Simple manufacturing under foreign guidance Vietnam Have supporting industries, but still under foreign guidance Thailand, Malaysia STAGE THREE Management & technology mastered, can produce high quality goods Korea, Taiwan Border to Middle STAGE FOUR Full capability in innovation and product design as global leader Japan, US, Income Economies EU Poor countries in Africa
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 Political Elites & Government Bureaucracy
Formal PPA Personal Networks Lobbying Campaigns &Elections Bribing
Source: Adapted from OECD
Business Sector 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
Country High Hong Kong Quality Score 11.0
Country Brazil Medium Quality Score 7.6
Country India Korea Malaysia Pakistan Singapore 10.0
13.0
10.5
11.0
13.5
Chile Colombia Costa Rica Côte d’Ivoire Egypt 5.0
8.5
9.0
8.0
7.8
Argentina Republic Dominican Ecuador Guatemala Haiti Kenya Low Quality Score 3.8
2.0
4.0
3.0
4.0
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 Size Diversity (Range of products) Ownership Large/ Low/ Specialized activities, focus on core competencies Shareholders from other firms in Keiretsu Management Relationships with other firms Professional Recruited within the corporate ‘ family ’ Long team formal relationships in vertical and horizontal Keiretsu groups Relationships with government Low/moderate Industrial development policy Korean Chaebol Large/ High/ Diversified over many sectors Family ownership and possibly shareholding by other firms Family occupy key positions Adversarial relationships with other Chaebol, informal vertical relationships 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) Horizontal/Democratic PPA (Phase II) Government Government-sponsored research institute Government-sponsored research institutes Large firms SMEs Experts Universities Large firms Government SMEs 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 Cabinet & economic Policy Coordination Council Committees & Affiliates GSRIs (1) MOFE MOCIE SMBA KOTRA KOTEF KITECH MOST GSRIs (2)
(Continued) FKI Private Sector KCCI K-Biz Chaebols & Large Firms KITA Industry-Specific Associations SMEs GTCs Academia & Research Institutes NGOs
Conceptual Framework of PPA in Korea
Government People F o r e i g n Ministries and Bureaucrats Profit Organizations / Enterprises ----
Interface/Interactions
---- Industrial Associations, etc.
Non-Profit Private Organizations M e d i a 32
Government-Business Alliance under Park Administration
President Economic Secretariats State Council Five-year plan KDI, Chaired by Deputy PM Economic Minister’s Council EPB Govt.-Business Meetings:
-
Etc.
Development planning Deputy PM
-
Public investment planning
-
Budget
-
Monitoring
-
Aid management - Export promotion - Economic briefs - HCI drive, etc.
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 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) Capital good imports Raw material imports Foreign technology imports
Source: KDI
Technology development Export promotion Manufacturing processing Private enterprises Financial tax support Government Well-educated labor force 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
Intervention
High savings rate Technology catch-up Well-educated work force
Phase – I Model
Finance Inflationary enforced savings Financial regulation Financial support Government Industrial Policy
Chaebols
Labor input Suppressed labor movement Labor Low wage National mobilization Source: Lee, Jong Won. 2004.
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.
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 Economic Cabinet Meeting Presidential Secretariat Ministries Foreign market EPB Others MTI Examine & discuss detailed measures & actions Federation of Korea Industry (FKI) Industrial associations and supporting organization Textile, Food, Automobile, Iron & Steel, etc.
Bridge between government and business sector Information sharing, Specific action formulation, etc.
Domestic market Related 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 inter connected 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.
Phase – II Model
Foreign Capital Investor-oriented governance Government Coordination Finance Financial support Market expansion
Chaebol
Labor market Flexibility Labor Economic liberalization and opening Source: Lee, Jong Won. 2004.
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.
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.
IV. Trade and Foreign Investment
47
Export-Oriented Industrialization
-
Korea's industrial development has been achieved through export oriented 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 1980 1985 1990 1995 2000 2005 2010 3 9 14 24 28 32 26 24 34 36 45
Public-Private Alliance for Trade
President Examine & discuss basic policy & direction Economic Cabinet Meeting Presidential Secretariat Ministries MTI Others Information sharing, specific action formulation, etc.
Monthly Export Promotion Conference Federation of Korea Industry (FKI) Examine & discuss detailed measures & actions Bridge between government and business sector Chabols SMEs Foreign market Domestic market Related 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 export of the importance of Problem shooting, especially directed by the President Sharing information and visions Encouraging leading exporters and private sector among participants inducing cooperation of the
‒
The conference made great contributions to the high export performance during the Phase-I period.
Monthly Export Promotion Conference Scenes
51
List of Participants for the Third Monthly Export Promotion Confernce in 1967
The List of Attendants Central Government The Deputy Prime Minister, Minister of Home Affairs, Minister of Finance, Minister of Health & Welfare, Ministers and Minister of Transportation, Minister of Construction, 2 Ministers without portfolio, Vice-minister of Foreign Vice ministers Affairs, Vice-minister of Commerce and Industry, Vice minister of Public relations, 3 PACST(Presidential Advisory Council on Science and Technology) members, Commissioner of National Tax Service, 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 others Commerce and Industry, 1 Director from Ministry of Agriculture, 1 Director from Ministry of Maritime Affairs & Fisheries, 2 Secretaries from Prime Minister (17) Governor of BOK, Governor of KDB, President of Financial institution KEB, President of Industrial Bank Korea, CEO of Federation of Agricultural Credit Cooperatives, CEO of Federation of Fishery Credit Cooperatives (6)
52
(Continued)
State-owned institutions, business associations Academia 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 Law makers and Prosecutors Representatives from businessmen 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) Regional Representatives Mayor of Pusan, Governor of Kyungsang-Namdo, etc. 10 chiefs in the region Pusan and Kyungsang-Namdo 8 professors in the region Pusan and Kyungsang Namdo
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.
Total Exports
Exports by Small and Large Firms
(Unit: million US dollars, %) 2002 2003 2004 2008 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) Note: The numbers in the parenthesis are the shares in total exports Source: The Export-Import Bank of Korea 258,268 (61.2)
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
Secure advanced technology
Develop new technology & product Global Enterprise
Expand R&D capability
Share global firms’ know-how
Create new market Korean enterprises, universities, institutes KOTRA
Organize the working group and management project
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 21 st century . For this, the government promoted technology-intensive industries such as IT . The ‘Industrial Development Act’ was introduced in 1986.
‒ ‒ ‒ ‒
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 the innovation leader in Korea, replacing or reducing the government’s leadership.
true emergence of the private sector as
‒
The method of technological innovation became imitative catch-up to the innovative catch-up.
diversified from the
Korean Electronics Leading the World Market
(% in the world) Memory (45.0%) CP (28.8%) TFTLCD (41.3%) DTV (13%)
Contribution to the Korean economy by share:
GDP (14%) and Export (30%)
MP3 (20%) 60
Ratio of R&D to GDP
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
% R&D Expenditure by Organization % R&D Expenditure by Source (2006 )
Person
Researchers by Degree by Organization
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’
Interactions in a National Innovation System
Knowledge University Grants Researchers Funding Research Institutes Funding Funding Grants Graduates Government Incentives Tax Knowledge Technology Indigenous Knowledge Base Knowledge Global Knowledge Base Industry Source: Suh. 2000
• • •
Industrial & Technological Deepening Transition to Knowledge Based Economy Sustainable Economic Growth
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
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 Economic Cabinet Meeting Presidential Secretariat Ministries Foreign market 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.
Domestic market Related 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 technology trends and mediating participants.
the role of monitoring foreign original sources and research
‒
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.
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’ Hee “Change everything except your wife and kids!” “Quality first” “Secure and train high caliber manpower” by Chairman Lee Kun-
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
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.
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.
Supporting Institutions and Incubation Centers
Ministry of Knowledge Economy (MKE)
National Economic Development through Regional and national Innovation systems
Small and Medium Business Administration (SMBA) Korea Venture Business Association Institute of Korea Entrepreneurship Development (IKED) Korea Technopark Association Infrastructure Building Programs for High-tech Based Startups Korea Credit Guarantee Fund KIBO Technology Fund Special Programs for Lab Based Startups Management & Consulting Services Idea Development Programs Tomorrow’s Tech.
Based Entrepreneur Development Programs Angel and Venture Capital 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’ GDP (US$ billion) GDP per Capita (US$) Real Growth Rate (%) Inflation Rate (%) Exports (US$ million) Imports (US$ million) Foreign Exchange Reserves (US$ million) Foreign Debt (US$ million)
Source: DANE, Banco de la Repulica
2008 22.3
3,607 2.4
5.5
4,611 9,004 2,545 8,846 2009 e 22.3
3,430 -3.5
-0.2
3,861 6,706 2,986 9,566 2010 f 21.9
3,520 1.5
2.5
4,303 7,605 3,491 10,243 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 economic development.
are crucial for
‒
Institutional reforms and policies, including innovation and export promotion, require a committed leadership and efficient bureaucracy be successful.
to
‒
Especially the people should be convinced that their efforts will be properly rewarded if they follow the government’s guide and policies.
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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.
Innovating the System and Institutions
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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.
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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
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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.
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
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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