The creativity gap

• Published Jun 5, 2013 5:17 PM KST
• Updated Jun 5, 2013 5:17 PM KST

By John Burton

It might appear that Korea is already half way to becoming the “creative economy” that President Park Geun-hye wants to achieve during her administration.

The Korean wave of entertainment and fashion is popular throughout Asia, a prime example of national soft power. Samsung Electronics is not only the world’s biggest producer of smartphones, but it even threatens to topple Apple from its pedestal as the maker of the “coolest” gadgets. Korea ranks an impressive eighth in the World Bank’s respected “Doing Business” index, which measures overall business environment conditions.

That all bodes well for Park’s goal of creating an economy based on innovation and services rather than on manufacturing and industrial exports, the model that her father, Park Chung-hee, introduced in the 1960s and 1970s. Along with Singapore and Hong Kong, Korea appears to be leading Asia in fashioning an economy fit for the 21st century.

But one thing still threatens to kill that dream: Korea’s top-down management approach that often stifles creativity. Government ministries and big companies are still run like the military, with loyalty and hierarchy, not ideas, being the highest-prized values. Changing that mindset will be exceedingly difficult.

The roots of Korea’s preference for centralization lie deep. They reflect the strong influence that neo-Confucianism has had on Korea over the last 600 years after it was adopted as the guiding philosophy of the Joseon Kingdom. Korea’s first exposure to modern administrative practices occurred during the Japanese colonial period and Park Chung-hee’s authoritarian rule reinforced the militaristic tendencies of government and business administration.

These conditions are not ones that allow innovative businesses to thrive, although Koreans display a strong streak of entrepreneurship when the environment is right. They have the highest percentage of small business ownership among all ethnic groups in the U.S.

In the wake of the Asian financial crisis in 1997 and the collapse of at least half of the top 30 chaebol, Korea had an opportunity to free itself from the oligarchical grip of big business. The late 1990s and early 2000s were a vibrant period with the rise of innovative businesses from high-tech firms to trendy restaurants. But the chaebol have since reasserted their authority and economic dominance.

The conditions for fostering entrepreneurial culture appear to be worse now than a decade ago. Household debt levels are among the highest in the developed world, with middle-class families weighed down by heavy property and education costs. The income gap between the rich and poor has widened. Economic growth has slowed as a result of the global financial crisis hurting key export markets. A weaker Japanese yen threatens to take away more business from Korean exporters.

Initiatives announced by the Park administration to promote innovative start-ups are certainly welcomed. They include providing subsidies and tax breaks to small businesses and investors. But bureaucratic rules threaten to undercut the impact of these measures.

For example, the government has promised to give entrepreneur visas to highly skilled foreigners to start businesses. But at the same time, bureaucrats have increased the required paid-in capital for a foreign-owned start-up from 100 million won to 300 million won despite protests from foreign business associations in Korea.

Inflexible rules still govern government-sponsored entrepreneurial initiatives, with an emphasis on the bureaucratic process rather than results. This reflects an attitude among government officials that they know best in overseeing business development. But creative industries differ from manufacturing and excessive regulations can result in unintended consequences.

Take the case of Korea’s electronic ID system. Because the system is exclusively based on Microsoft Internet Explorer and Windows operating systems as a result of government fiat, it has created a de facto monopoly for Microsoft in Korea since most important Internet transactions require eID. This has isolated Korea from developing mobile device operating systems using Google Android and Apple iOS because of their lack of compatibility with the eID system. Worse, the eID system has security vulnerabilities, but has not benefited from global advances in security systems because of its Korea-specific technical features.

Although Korea has one of world’s most advanced broadband networks and is a leader in e-commerce and e-government, it nevertheless is threatened with becoming isolated from global Internet trends because of its reliance on its proprietary eID system. Korea only needs to look at the example of Japan, which also has an advanced and innovative mobile telecommunications industry, but has been unable to break into world markets because the technology is based on government-imposed local standards instead of open source systems.

The Korean government can take much of the credit for spearheading the nation’s advanced Internet network in the first place, but continued bureaucratic meddling could undone much of that good work.

President Park says that one of her role models is Margaret Thatcher. So perhaps it is time that she applies a “hands-off” policy when it comes to government regulations, allowing bureaucrats, for example, to set broad guidelines for innovation industries, but then get out of the way of developers.

While her father was known as the man with the iron fist, President Park can assume the role of the Iron Lady in putting an end to regulations that inhibit creativity.

John Burton, a former Korea correspondent for the Financial Times, is now a Seoul-based independent journalist and media consultant. He can be reached at john.burton@insightcomms.com.