Garages of dreams

By John Burton

“Garages of dreams” is how President Park Geun-hye rather inelegantly described her latest plans for encouraging start-ups as part of the “creative economy.” She was referring to the mythical beginnings of Apple, Google and Amazon in small garages before they became the global powerhouses of the internet economy.

“I will provide support to creative economy innovation centers until they become the ‘garages of dreams’ that turn innovative ideas into technologies, products and businesses,” she declared in her hometown of Daegu in opening one of the first innovation centers last week.

What might be surprising about her plan is that it appears aimed at benefiting the big chaebol conglomerates rather than leading to a genuine start-up economy. The reason is that each innovation center in a major city will be sponsored by a different chaebol. The one in Daegu, for example, will be supported by Samsung, whose heir apparent, Jay Y. Lee, attended the ceremony along with the President.

Other partnerships include an innovation center in Daejeon with SK Group, Busan with Lotte, Inchon with Hanjin, Gyeonggi with KT, Gwangju with Hyundai Motor and North Chungcheong with LG.

Forgive me, but I thought the purpose of the creative economy was to wean Korea away from its dependence on the chaebol system, which has been blamed for stifling an innovative and entrepreneurial business culture in order to preserve the status quo. The President or her bureaucrats appear intent on perpetuating the acquisition of promising start-ups by the conglomerates instead of fostering their independent development.

The justification for the partnership policy is that Korea’s big companies will provide the global marketing clout to local start-ups. But it is hard to see this working in practice without the start-ups being swallowed up by their big brother “mentors.”

It is difficult to imagine, for example, Apple ever getting off the ground if it had been forced to work with the likes of IBM in its early days. The likely outcome would have been the deliberate crushing of Apple because of the threat that its small personal computers posed to IBM’s mainframe computer business or IBM buying Apple to advance into the personal computer sector.

The chaebol are not particularly known for their entrepreneurial flair. Take as an example the CJ Group, which has been named as buddy innovation partner for Seoul. Leave aside the fact that its chairman was recently sentenced to three years in jail for a series of financial crimes.

CJ now claims the trial and imprisonment of the chairman has paralyzed the group, forcing it to delay or pull out of investment projects as the decision-making process has been disrupted. This reflects the top-down management structure of the chaebol in contrast to the flexible and responsive management skills of start-ups.

The chaebol are also not particularly good at supporting up-and-coming products. There is the famous story of Andy Rubin, the creator of Android, who met senior Samsung executives in 2005 as he sought investment capital to complete the development of his mobile phone operating system. The entire Android team of eight engineers flew to Seoul to pitch the Android idea to a roomful of 20 Samsung executives.

Samsung’s response? “You and what army are going to go and create this? We have 2,000 engineers and you have eight people? Are you crazy?” Rubin was told by the Samsung meeting leader. Two weeks later, Google acquired Android at a bargain price of $50 million.

As a result of that decision nine years ago, Samsung now finds itself dependent on the Android eco-system and vulnerable to competition from other Android-based smartphone makers as it continues to struggle in coming up with its own operating system at the cost of millions of dollars.

If the government wants to promote the creative economy, it should pursue deregulation. To take one small example, the Private-Public Council for the Creative Economy recently proposed creating “tour buddies,” or personal tour guides, for foreign visitors to Korea to help boost the national tourist industry, following similar programs in the U.S. and Europe.

But the proposal was shot down by the culture and transport ministries, who claimed that it would lead to a flood of unregulated tour operators, make it difficult to compensate tourists if problems occurred, and raise traffic safety issues because the guides might use personal vehicles that were not properly inspected.

Curbing the power of the chaebol would also be helpful. Kim Woo-choong’s recent book has revived a debate on whether his Daewoo Group should have been allowed to go bankrupt. But it should be remembered that the downfall of Daewoo and other conglomerates in the wake of the Asian financial crisis ushered in a burst of entrepreneurial activity that marked the early 2000s before the conglomerates reasserted their dominance.

Aligning start-ups with the chaebol will not lead to Garages of Dreams but rather to the Garbage of Dreams.

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.