Like most of you, I have been reading the Economist off-and-on for 20 years. It, along with the Financial Times, is the most reliable journalism in English I think. I find it less partisan and noxious than most US journalism (or maybe I just agree with the classical liberal bent more). In any case, I got invited to its ‘Bellwether’ conference series on South Korea last week. Here are a few thoughts.
1. Bankers and financiers are a greater force for liberalization than I realized. I have the general IPE knowledge of Asian mercantilism, which I bemoan regularly here. But these guys really knew the details in depth, and they hammered the Korean policy-makers on this. This was an education. Among other things, I didn’t realize how much the Bank of Korea intervenes to ‘fine-tune’ the exchange rate or just how many gimmicky non-tariff barriers Korea uses to continue to protect its car industry. The ‘fine-tuning’ (nice euphemism that) is done at the behest of Korea’s biggest exporters – the chaebols in shipping, automobiles, and electronics. And it was quite amusing to watch the westerners at the event try to get the Koreans to admit that such gaming was in fact ‘capital controls,’ but the policy-makers ducked that one again and again. Being a political scientist focused on politics, I assumed the dirty work of pushing Asia toward liberalism fell mostly on the western bureaucrats who arrange FTAs. It was pleasing to see so many private sector people saying the same things that we say, only without all the theory.
2. Korea’s modernity. Nothing is a better marker of Korea’s modernity than a conference like this – filled with foreigners who want to make a lot of money! Having written my dissertation about the IMF and World Bank, I am accustomed to going to conferences on development, debt and similar travails. But here was a country that escaped from all that to be a good recipient of FDI, just as those institutions hope. (The World Bank calls former borrowers like Korea ‘graduates’ into private sector capital markets. Condescending?)
3. Korea’s failed quest to be a ‘hub.’ For 10 years now, the ROKG has been trying to build up Seoul as an ‘international financial hub,’ and the session on this was downright self-congratulatory until I asked a question. I suppose academics exist to speak truth-to-power (which we don’t do usually – see Iraq). So I was pleased for a moment to be persona non grata on this, because I think it is wildly overhyped. The idea is that Seoul in Northeast Asia could become like Hong Kong (HK) is to China, or Singapore is to Southeast Asia – a bastion of modernity for international banks in a wild west region. There are some pretty obvious problems though:
3.a. Northeast Asia doesn’t really need hubs like Southeast Asia does, because Northeast Asia is already quite settled (but for NK) and developed. A ‘hub’ implies a surrounding piedmont that is less orderly or coherent, like Hong Kong to early 20th century China, or Singapore to ASEAN, but still worth penetrating. But there is no disorderly yet still accessible backyard up here: NK is closed; China is modernizing; and Japan is already modern. That leaves Russia’s extremely underpopulated Far East. Anyway, if there was such an opportunity, Tokyo would have grabbed it long ago. And this leads to the next problem…
3b. The hub market is Asia is already full – HK, Singapore, Shanghai, Tokyo. You can’t have too many hub or special economic zones, or they aren’t special anymore. So the first mover advantages are high and Seoul has come late to this party.
3c. North Korea. Seoul is 35 miles from the DMZ. This proximity makes it a city-hostage to the North. None of Seoul’s regional hub competitors have such a geopolitical backdrop. I find it hard to believe that big banks will locate their Asia HQs so close to such unpredictability. I can’t see Seoul competing among Asia’s biggest cities until the peninsular situation is resolved.
3d. Korea is still struggling with just how much it wants to multiculturalize, and until it accepts ‘diversity,’ it will be very difficult to get lots of middle-aged professional foreigners with families to reside here permanently (as in HK or Singapore). English is spread only thinly among the elite; getting a taxi is still a hassle. Foreign schools are insanely expensive here ($15-20k a year). The bureaucratic hassles of foreign life in Korea are endless – our national identity numbers are coded to mark us as foreigners, so shopping websites routinely block us. Cell phone companies still make it hard for foreigners to buy phones themselves (my Korean wife had to reserve our iPhone 4; Korea Telecom would not accept me). Tenant law is a nightmare (the courts tilt against us), as is contract law or getting a serious bank loan, like a mortgage or a car loan. In short, the primary hurdle for Korea to international/regional ‘hub’ status is not infrastructural, political, technical, etc., but cultural. Do they really want us here in large numbers, and are they prepared to really entrench the English bilinguism necessary to attract professionals, as has been the case in Singapore and NK for decades? The answer is still no.
4. Bankers, financiers and policy-makers find academics sort of a waste of time. There were 200 invitees, and among them only 5 academics. Given that I usually go only to academic conferences, I was out of my comfort zone – which of course is a good thing for most of us. I really began to see just how peripheral we are to, well, almost anything really important to these guys. This was quite a let down, and somewhat humiliating. Everyone was quite polite, but their skill sets were radically different, they had their fingers deeply on the pulse of policy in SK, and Asia, far better than I, and they speak their own CPA/MBA/Wall Street language that I really struggled with. My commentary seemed tiresomely abstract to them. I felt like a high school kid in a college class – out of my league and eventually cowed into silence from fear of looking like an idiot. Walt and Mead worry a lot about the ‘cult of irrelevance’ in political science, and nowhere in my recent experience did I perceive that as strongly as sitting in a room filled with serious people in expensive suits about the serious business of making money. What a contrast to the ridiculousness of so much academic theorizing! Conscious of this over the years, I have forced myself through econ textbooks and the Financial Times’ business coverage (a HUGE education that), but it was a healthy shot again my academic hubris to realize I didn’t understand 20% of what was said at this event. Even more humiliating was being told that most invitees must pay up to $2000 to attend these Bellwether conferences, but they invite academics gratis, because they assume we are broke. Good grief. 😦
5. Korea and Islamic finance? A couple of speakers mentioned this as a future expansion possibility for Korean banks. I found this downright off the wall. I suppose when there is big money involved, everything else fly out the window, and international private sector banking is far from my skill set. But the political scientist in me sees several huge hurdles. First, most obviously, Koreans know very little about Islam, and what they do know is generally negative stuff flowing from the GWoT. My students ask my astonishingly basic questions. The cultural distance is huge; Korea has less than 35k Muslims. Second, Korea is becoming more Christian, specifically more evangelical, and more closely aligned with the US in the GWoT. Third, the cultural fit of the sovereign wealth funds of the Gulf states make them the obvious choice for pious Muslims. If you were an devout Indonesian investor, what would really draw you to Korea of all places? I just don’t buy it all. Far more realistic would be a move into development financing in Southeast Asia without the cultural baggage. This is far closer to Korea’s own past and skills.