Malaysia in the Era of Globalization #24

The Koreans were diligent learners; they bested the Japanese. The hard-working Japanese looked lazy in comparison to the maniacal Koreans, so complete and successful the emulation.

The headlong rush towards industrialization carried a heavy social toll. With resources diverted towards heavy industries and the military, precious little was left for social development. Housing prices hit the roof and prices of common consumer goods spiraled up. These social problems were compounded by Parks’ increasingly authoritarian rule and the menacing activities of his Central Intelligence Agency (CIA) that seemed to have learned only too well from the excesses of its American counterpart. Legitimate students’ and workers’ protests were brutally suppressed, turning their victims into martyrs.

These fissures in Korean society were exacerbated with the inevitable economic slowdown. In the end Park’s own CIA chief assassinated him in 1979. Park’s social policies offended many civil libertarians but the results of his economic strategies were impressive. And with the tangible successes, the Koreans acquired the confidence to proceed to the next stage of development.

Following another period of political crisis, General Chun Doo Hwan seized power. Aware of his limitations on economic matters, Chun proved to be a diligent and fast learner. He was smart enough to choose seasoned economists trained at prestigious American universities as his advisors. These economists, stooped in the tradition of America’s free enterprise, steered Chun to make major adjustments more in line with modern economic realities. Some of Park’s more ambitious projects that simply did not make much economic sense were either shelved or scrapped, and the Korean economy was gradually liberalized.

Unfortunately Chun suffered a severe setback when North Korean agents assassinated many of his senior advisors in Rangoon in 1983. And like his predecessor Park, Chun’s administration was also mired with repeated scandals of corruption, often involving his immediate family. In the end he too was forced out.

Having liberalized its financial institutions, Korea began to attract foreign money. But these new foreign funds began shifting from direct investments in factories and plants to short-term capital inflows that merely fueled the stock market. Buoyed by Korea’s economic successes and buoyant equity market, foreign lenders were eager to lend and the Koreans equally willing to borrow. The government implicitly encouraged this by lowering interest rates and fixing its currency to the dollar.

Alas, success brought with it its own excesses and evil. With the inevitable overcapacity and the developing Asian economic contagion that began in Thailand in June 1997, Korea too was caught in the maelstrom. These “hot money” fled as fast as they came, leaving Korea and its heavily indebted industries and chaebol in deep financial crisis.

With International Monetary Fund’s (IMF) help, the 12th largest economy was saved from default; so too was the world’s economic system. But that help came with some very stiff terms. Korea had to raise its interest rates to usurious levels, shut down excess capacity, and further liberalize its system. The effects of the remedy are such that to Koreans the acronym IMF stands for “I Am Fired!” Today South Korea has substantially recovered from those dark days of 1997, aided no doubt by the painful structural adjustments imposed by the IMF and the sheer grit and determination of its leaders.

Korea’s recent economic turmoil was often described in apocalyptic terms. A reality check is in order. It was never in any danger of collapsing, but its overeager lenders at Wall Street were, as they were so vulnerably overexposed. Besides, even if the country were to default and its economy collapse, Korea would still have its highly educated and entrepreneurial workforce, the discipline of its people, and all those wonderful infrastructures. And to top it, the political will of its leaders.

The recent setbacks notwithstanding, Korea’s achievements are truly remarkable. Here was a country with no natural resources, been colonized, and then occupied by a foreign army, becoming a top economic power in just one generation.

Volumes have been written on the South Korean phenomenon. Many attribute it to the mysterious and of course superior “Asian values” and Confusion ethics. Alas these pat explanations have ready debunkers. North Koreans too had similar values and ethics, but that did not land them far. In North Korea that same Confucionism gives rise to paranoid xenophobia. Nor can the champions of free markets claim much credit because the government was heavily involved in central planning and in the economy. These are anathema to free market advocates. Indeed the Soviets too would be pleased with Korea’s own series of Five Year Plans.

The Koreans do have something going for them – their respect for learning and value for education. Korea rightly emphasized education, not just any type of education for that could have easily ended up producing highly educated taxi drivers and petition writers as in India, but one that emphasizes the sciences, mathematics, technology, and English. Eager bright Korean students inundate the graduate schools of leading American universities. They are keen on learning from the best. While many countries are content merely with sending their students out, one of the Korean chaebols hired the entire Johnson Business School at Cornell to train its executives!

This heavy emphasis on education is remarkable considering that the nation was also spending heavily on defense. The Korean obsession with education mimics the Japanese, complete with their own version of “cram schools.” The whole country was consumed with education and learning. It is said that during the annual final examination season, the flight path at Seoul’s old Kimpo airport had to be diverted lest the noise would disturb the students! So intent were the Koreans with their cramming that the government had to ban extra-hour tuition so as to give everyone a fair shake. It turns out that the rich were spending inordinate sums on private tuition for their children, putting those from poor families at a distinct disadvantage.

Such obsession with rote learning and passing tests has its breaking point. Today many Koreans are sending their young children abroad for high school simply to escape the meat grinder that is the Korean system. Families had to sacrifice much to do this. Many a Korean father is leading a lonely life back home while their wives are abroad accompanying the children – all to spare their children the torture of attending a Korean school!

A more recent and dramatic phenomenon has pregnant Koreans flying to America to give birth so their babies will have automatic American citizenship. This of course will come in handy when these babies are ready for high school and college. Talk about long term planning!

While the world may sing praises for the Korean educational system, the Koreans themselves are not impressed with it.

Many Koreans, especially those with highly desirable qualifications in the sciences and engineering from elite Western universities, stay abroad to work. After they have scaled the corporate ladder they would be enticed back home to start their own ventures, with generous funding from the state. The initial attempts at attracting expatriate Koreans were clumsy and unsuccessful. Besides, they were busy enjoying their freedom and newfound affluence. To make matters worse, to most Koreans abroad, their memory and image of their homeland were colored by the notorious activities of their CIA in harassing their countrymen.

To their credit, the Korean leaders persisted and eventually overcame the suspicions of young Koreans abroad. Indeed when these leaders visited America they never failed to meet and entice these young Koreans to return home. To many Koreans who were incognito in America, the chance to be wined and dined by their head of state and the promise to be somebody back home was indeed giddying. Many took the offer and successfully contributed to their homeland.

I remember seeing how flattered my Korean colleagues were with the attention they received from visiting Korean dignitaries. The South Korean success spawned many imitators; other Asian nations including Malaysia are now belatedly trying to attract their own nationals to come home. Unlike the Koreans however, Malaysia has yet to learn the fine art of friendly persuasion.

My first experience with this new economic clout of modern Korea was in the early 1980’s. IBM had just released its wildly successful personal computer. Assembled from off-the-shelf parts, the PC was not only a hit with consumers but also carried an obscenely high profit margin for its maker. I was about to buy one when our neighbor showed us his new machine made by an obscure Korean company and at a fraction of IBM’s price. I rushed to the store only to find that the entire stock had been sold with only the floor model left.

That company, Leading Edge, was started by one of those returning Koreans. For a while it humbled mighty IBM. Like South Korea, Malaysia too sent thousands of young students abroad. Unlike the Koreans, Malaysians were doing mainly undergraduate studies, often in the arts rather than science and engineering. Further, while the Koreans gravitated towards top rank universities; Malaysians chose the least competitive institutions. And unlike the Koreans, Malaysians rushed home as soon as they received their degree, to establish seniority in the bureaucracy! Malaysian students did not value American work experience.

Mark Clifford in his book, Troubled Tiger, attributed Korea’s success to its government having its fundamentals right. Korea has a high level of literacy especially for science and mathematics; high savings and investments; discipline and hard working citizens; and a strict program that helps curb its population growth. Clifford’s observations deserve scrutiny because he was among the first to raise the issue of the vulnerabilities of the Korean success story. His book was published in 1994 while the world was fast running out of superlatives to describe South Korea.

Clifford rightly zeroed in on Korea’s weakness: corruption being the way of life from Rhee’s time till today. Corruption is inevitable whenever the state is very powerful and heavily involved in the private sector. We could only marvel how far the Koreans would have been today if only their system were less corrupt.

On a more general note, the American economist Paul Krugman also voiced his skepticism on the sustainability of the Asian economic miracle. In a particularly prescient article in 1994, he predicted that the spectacular economic achievements of many Asian countries were essentially a one-shot affair. Krugman was proven right not long after that. The Asian economic contagion swept through the continent in 1997.