A Battle for the 'Seoul' of South Korea's Economy (Page 2 of 2)

Moving Korea toward more innovative production will require two major changes, perhaps so enormous they should be called cultural. First, Korean education needs to emphasize creativity and free-thinking more. Far too much pre-college training focuses on the rote recitation of answers with little underlying comprehension. Math and science may be conducive to this kind of learning, but it is disastrous when applied to the humanities and social sciences. It encourages an intense “copying culture” in which the instructor’s thoughts are treated like ideal answers to open-ended questions and parroted back. This is the single most challenging part of my job as a professor in South Korea.  Ask any foreigner instructor in Asia what her biggest challenge is, and she is likely to say plagiarism. Plagiarism extends to the highest levels of Korean academia and is the biggest reason why Korea still lacks a globally ranked university. Its therefore hardly surprising that Apple accused Samsung of plagiarism.

More generally, Korea needs to develop much greater respect for IPR. Mimicry may be the highest form of flattery, but in post-industrial economies, it is also increasingly a crime. Because industrial production is moving to BRIC-like countries, companies in wealthy states increasingly generate their revenue from innovative services and useful information. Because Korea has not yet fully moved into the information economy, the costs of e-piracy feel invisible. But there already has been one major casualty: gaming-obsessed, chaebol-friendly Korea lacks a major recognizable gaming label like Namco or Activision. Domestic downloading pirates profits away, and console gaming has flopped as consumers eschew paying full price in stores. (This is also what destroyed DVD and Blu-ray sales in Korea, damaging those creative industries as well. The Korean penchant to download almost everything will generate increasing trade friction, particularly under new free trade agreements (FTAs) with the U.S. and EU. And Asian firms that engage in egregious copyright infringement will increasingly become litigation targets, just as Napster was eventually shut down for copyright infringement.

The second big shift Korea needs to avoid more IPR litigation is greater decentralization of its economy. The extreme oligopolization of Korea’s economy by chaebol is destructive in many ways – it encourages rent-seeking, facilitates political corruption, generates a too-big-to-fail mentality, and inhibits a proper currency float. It also discourages innovation. Large firms that permanently and effortlessly dominate their markets become complacent, bloated winners with obvious incentives to keep competitors out and prevent changes that might damage secure revenue streams. A very obvious example is Microsoft, whose operating software monopoly led to the complacency that generated the awful Vista. Microsoft attempted to keep out competitors with gimmicks like purposefully making Windows difficult to use with non-Microsoft software.

Korea’s biggest companies are in a similar position, which is why innovation, even in Korea’s strongest sectors, rarely comes from Korean firms. Chaebol may perfect extant technologies, but they lag at pioneering innovations, largely because disruption does not benefit these gigantic established winners. Rising challengers shake-up markets with clever innovations, but the extreme concentration of Korea’s economy almost deliberately quashes local “animal spirits.” The cell phone industry is an excellent example. Dominated for years by KT and SK, the market was stagnant, with dull flip-phones whose primary innovations were gimmicky colors and lights, while the U.S. phone industry had already entered the smartphone era with products like Blackberry. When the iPhone hit and Koreans learned of it, Korea’s telecom oligopolists panicked. They pressed the Korean government to maintain a protectionist security standard to prevent the iPhone’s arrival for two years, while Samsung effectively reverse-engineered the iPhone to create a competitor. In the end Samsung’s reputation was tarnished and Korea’s consumers spent almost five years without smart phones that Westerners had long taken for granted.

Samsung-Apple is just the beginning of Korea’s troubles as it enters into the mature world of OECD competition, where information is frequently a copyrighted product. The media’s nationalist response that the lawsuits are anti-Korean protectionism ignores both the long history of Korean mercantilism and the importance of patent protection in modern economies. The piracy damage to Korea’s digital industries, like gaming and DVD, are a case in point. Koreans are no less creative than anyone else, but their education system and economic structure strongly encourage copying over innovation. If this does not change, expect more lawsuits.

Robert E. Kelly is an associate professor of international relations in the Department of Political Science and Diplomacy at Pusan National University in South Korea and Senior Analyst at Wikistrat consulting. More of his work may be found at his website, Asia Security Blog

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