Korea doesn't bully just foreign companies

In the spirit of the new normal of criticizing allies, Washington recently complained out loud that American companies are being unfairly treated in Korea.

The State Department flagged “significant concerns” over the “fake news” law, which went into effect this month. This followed a scathing House Judiciary Committee report that said Seoul was engaged in a “harassment campaign” against U.S. businesses, particularly the e-commerce giant Coupang.

It’s a serious accusation, doubly so because it is coming from the country’s closest ally and trading partner.

Cheong Wa Dae issued a flat denial and floated the suggestion that Washington was being played by Coupang lobbyists.

This response could have been better. But that is not to say Washington was right. It wasn’t. It was only half right.

The real problem in Korea is not whether the authorities mistreat foreign, or specifically American, companies. They don’t really. It is that Korea too often mistreats companies, period.

That fine point is not always apparent to those in the firing line. Speak privately to foreign executives and you will find many who feel singled out.

Few will say so publicly because, well, that would invite discriminatory retaliation.

I mean it. When you actually do business, rather than waffle about it like academics and, er, journalists, you soon discover that regulation is not just a rational matter of the law. It is also about the officials enforcing it. Get on the wrong side of them and you’re in trouble.

I worked in a company once where three tax officials spent a week going through the books and then declared that the company owed 30 million won in back taxes. When the chief financial officer, who was proud of her systems, asked for an explanation, the response was: “We could spend another week here.”

Admittedly, that was a few years back and I’m sure things are better now. But the fact remains that agencies responsible for licenses, approvals and investigations also possess wide discretion. Hurting their feelings with public criticism is not a winning strategy.

So, what exactly do these foreign businesses complain about? They often describe overlapping investigations, multiple agencies demanding information, unpredictable decisions and political pressure that would be unusual in many Western economies.

It is easy to conclude that this amounts to discrimination.

But talk to Korean executives behind closed doors and many tell similar stories of intrusive regulators, shifting rules, bureaucratic turf wars and a system in which relationships and experience matter as much as, if not more than, the law itself.

The difference is not so much how companies are treated. It is that the foreigners are familiar with better environments, not to mention that Korean executives have spent decades learning how to survive.

This tendency to bully business is not entirely surprising. Korea’s economic miracle was built under authoritarian governments that regarded business as an instrument of national development. Companies prospered, but only within a system where the state expected to set priorities, direct investment and intervene whenever it considered intervention necessary.

That model transformed one of the world’s poorest countries into one of its richest. It also turned many poor folk into the new elite.

Korea may be advanced, yet parts of that philosophy survive. For example, there remains an instinct among those who hold power that companies enjoy the privilege of doing business because the government allows it, and that commercial freedom is conditional upon serving broader public objectives.

That mindset does not discriminate. It embraces everyone.

None of this is an argument against regulation. Markets need rules, and companies that break them deserve to be punished.

But there is a profound difference between enforcing rules and reaching for the handy — usually vaguely worded and therefore freely interpreted — rule in order to exercise control.

A liberal market economy assumes businesses are free to operate unless they violate clearly defined laws. Government establishes the rules, applies them consistently, and then largely steps aside.

That creates certainty. It encourages investment. Most importantly, it ensures companies compete in the marketplace rather than in the corridors of government.

That’s kind of what we have. But not quite.

Washington’s concerns therefore deserve to be taken seriously — not, as I say, because they prove Korea discriminates against foreign firms, but because they expose a regulatory culture that many Korean companies have quietly complained about for years.

Korea needs to convince both foreign and Korean companies that they will be treated simply as businesses, operating under transparent rules, on a genuinely level playing field.

Michael Breen (mike.breen@insightcomms.com) is the author of "The New Koreans.” The views expressed here are his own.