The Korea Times Articles - 2003

Big Push and the '345 Generation'
By Chang Se-moon
December 28, 2003

As we welcome the New Year, we all realize that difficult times are ahead. It is sad to hear that the person with the very best training that Korea can offer through education at Kyunggi High School, Seoul National University, former head of the national auditing agency, Supreme Court justice and prime minister is accused of having knowingly conspired to accept tens of millions of dollars of illegal campaign funds during his failed run for the presidency.

Equally sad is the claim by the reform-minded and progressive president that he may be less guilty since the amount of illegal campaign funds that his party received possibly with his approval during the same campaign was no more than one-tenth of the illegal funds that the opposition party collected from the business community. As many people have said so many times, nothing is surprising in Korea. It is truly amazing, though, that business leaders can hide so much company money from the scrutiny of public auditors and board directors.

The best outcome would be to guarantee complete independence of prosecutors and let them pursue the money trail all the way to its very end. Prosecutors may then prosecute anyone and everyone who will be found guilty according to the law and their judgment. Long-term benefits of such approach will clearly outweigh possible short-term disruptions in the economy.

Korea will move on. I have no doubt that Korea will move on because of the strong foundation that the ``345 Generation’’ laid for the future. By the 345 Generation, I mean people who were born in the 1930s, 40s and 50s.

In this article, I would like to review some of the 345 Generation’s achievements. In 1962, Korea announced its first five-year economic development plan. When it was announced, the per capita GNP in Korea was less than $1,000 in today’s prices, compared to around $10,000 at present with the exact amount depending on the foreign exchange rates used.

Until the big push for heavy and chemical industries began in 1973 as part of the third five-year plan, Korea’s exports were mostly labor-intensive, light industry type such as textiles, wigs, rubber footwear and toys just as China has been doing for the past ten years. Heavy and chemical industries encompass a wide range of industrial products that include paper, chemicals, petroleum, coal, clay, stone, glass, basic metals such as iron and steel, fabricated metal products, machinery, electrical tools, and transportation equipment. Korea’s economy grew rapidly during the 1970s, aided by the big push for soaring exports and capital investment. During the decade, exports increased at an annual rate of 23.2 percent. The rate slowed to 8.9 percent annual rate during the fifth five-year plan of 1981 to 1986. Let me introduce some highlights during the first few years of the big push.

The POSCO (Pohang Iron and Steel Company) with an annual production capacity of 950,000 tons of iron, 1,032,000 tons of steel, and 908,800 tons of rolled stock was completed in July 1973. The Hyundai Motor Company was established in 1968 under a technical cooperation agreement with the British Ford Motor Company and began to assembly automobiles in the early 1970s. By 1978, Korea’s capacity to assemble automobiles reached 280,000 per year. These days, the new Hyundai’s plant in Alabama alone will be producing 300,000 vehicles a year. In the early 1960s, Korea’s shipbuilding industry was limited to building wooden fishing boats and a few small cargo vessels.

The Hyundai Shipyard with an annual capacity of 750,000 gross tons was completed in June 1974, signaling the beginning of what has now become Korea’s world-class shipbuilding industry. The completion of the Ulsan Oil Refinery in 1964 was the spark plug for development of the petrochemical industry. The Ulsan Petrochemical Complex with its 13 plants was completed by 1974. In 1976, the Export-Import Bank of Korea was established to promote and handle exports of these products from the big push heavy and chemical industries. Hyundai, Daewoo and Samsung were all deeply involved in developing heavy and chemical industries under the big push.

The periods immediately preceding and following the big push in 1973 were not very stable politically. This made it very difficult to place the big push at a steady hand and make the policy to stay on course. Park Jung-hee became the 5th president in December 1963. The diplomatic relationship between Japan and Korea was signed into normalization in June 1965, against massive opposition from the public. In June 1967, Park Jung-hee was elected as Korea’s 6th president, succeeding himself. In January 1968, no less than 31 North Korea soldiers infiltrated toward the doorsteps of Chong Wa Dae and U.S. spy ship Pueblo was captured by the North. In April 1971, Park Chung-hee was elected again Korea’s 7th president. In October 1972, all universities in Seoul were closed to keep students from protesting Park’s dictatorship, and all news media had to have their political news writings reviewed by the Park’s administration for approval before printing. Kim Dae-jung was kidnapped from a boat in the East Sea also in August 1973. Constitution was changed to the so-called Yu-sin Constitution in 1975 effectively allowing Park to become a life-time president. All these events raised social tension in Korea to the boiling point and became a harbinger of the tragedy that eventually came in 1979.

Economic planning had been pushed steadily during this period of political instability. The 1st five-year economic plans were adopted in 1961 and renewed in 1966 as the 2nd five year plans, renewed in 1971 as the 3rd five year plans, and again renewed in 1976 as the 4th five-year economic plans. Perhaps foretelling Korea’s future sports power in the world, Korean females won the world table tennis championship in April 1973. Although the military regime was extended through the election of former generals Chun Doo-hwan (1981-1988) and Roh Tae-woo (1988-1993), the solid foundation for the big push was cemented by the time Park Chung-hee was shot to death by his own security chief Kim Jae-kyu on October 26, 1979.

These days, Samsung Electronics, Hyundai Motor, LG Chemical, LG Electronics, Hanjin Shipping, Cho Yang America, Kumho Tire, Asiana and Korean Air Line are virtually global household names. Hyundai and Kia cars are everywhere. Container ships rarely miss carrying Hanjin containers. When telecom equipment is advertised on mass media, it is more likely Samsung or SK than some Japanese names. There are many other Korean businesses flourishing overseas. These include: Daelim, Hankook Sewing Machine, Kia, Daewoo Heavy Industries, SKC America, Daedong, Samlip, and many more.

Korea truly came a long way since the big push. I would like to give all the credit of Korea’s economic growth since 1960s to those people who were born in the 1930s, 40s and 50s and carried the brunt of the hard work to make the big push successful. Some of my friends told me that they did not have those fancy numbers such as 386 or 486 generation; they were simply working generation who single-handedly turned the Korean economy around.

I would like to call them the 345 Generation because these Koreans who worked hard during the early years of the Korea’s rapid growth were all born during the 1930s, 40s and 50s. Professor Choi Ho-in, who is Korea’s most widely respected economist, stated in his recent book on the 50-year history of the Korean economy that Korea had no capital whatsoever and nothing left to work with when Korea became independent in 1945 because all the capital was taken away by the Japanese during their 36-year occupation. This is the adversity the 345 Generation had to overcome to make Korea today’s global economic power.

Jim Rohn once said: ``Let others lead small lives but not you; let others argue over small things but not you; let others cry over small hurts but not you; let others leave their futures in someone else's hands, but not you.’’

This is how the 345 Generation made the Korean economy what it is now. The foundation that the 345 Generation laid for Korea’s future is too solid to be shaken by bad apples that were involved shamelessly in transactions of bribery and slush funds, and their cover-ups.

** Chang Se-moon is a professor at University of South Alabama and a member of the Korea Times Economic Editorial Board. E-mail : schang@jaguar1.usouthal.edu

I Hate Spam

by Chang Se-moon
December 25, 2003

Only a few years ago, spam was known as a canned meat made largely from pork, which was used at parties hosted by people who did not want to prepare food for themselves. These days, spam means an unwanted e-mail usually of a commercial nature sent out in bulk. Spam can also be used as a verb meaning to send unwanted or junk e-mails.

Today as usual, I received many more spam e-mails than e-mails that I found useful. Many of these spam e-mails come from Korea across the vast Pacific Ocean all the way to the heart of the Dixie where I live. Many spam e-mails I receive from Korea are promotions of their products and marketing opportunities through their websites. Some are fortune tellers, including "sajudaebak", that promise to tell me how I can find my mate, how to bring back my lover who ran away, or how to live a successful like. Others are adult sites. Apparently in Korea, adult sites can admit only those who are over a certain age and require residence registration number as a proof. Having no permanent or even temporary residence in Korea, there is no way I can peek into the adult sites coming from Korea even if I want to. I wonder why they keep sending me those sites through spam.

One of the most popular global spam e-mails is known as the Nigerian scam, delivered as a spam, although many Nigerian scam e-mails are no longer related to Nigeria. Typical Nigerian scam e-mails begin with a sweet sentence such as "I am Miss Folade Musa, first daughter of detained Chief of Military Tactics with the Government of Senegal," or "With warm heart I offer my friendship, and my greetings, and I hope this letter meets you in good time. .. My name is Mr. William Mutu, the first son of Omaro Mutu, one of the farmer from Zimbabwe, murdered in the land dispute in my country," or "I am Dr. Issa Danjuma, Managing Director Bill and Exchange Department at the African International Co-operation." All these Nigerian scam e-mails promise to share tens of millions of dollars if I can assist them to transfer their hidden treasures.

The Nigerian scam began about 12 years ago, and is also known as "419" fraud, named after the section of the Nigerian penal code that addresses such ripoffs. The Nigerian scam can be quite sophisticated. A businessman in Alabama who sells auto parts over the Internet received a $15,000 counterfeit check from Nigeria to pay for auto parts worth $5,000. The businessman cashed the check that somehow slipped through the bank, and mailed the difference $10,000 to the counterfeiter in Nigeria. Later it was found to be a counterfeit and the businessman lost $15,000. In 2000, the U.S. Secret Service set up an office in Lagos, Nigeria to confront the problem. Since that time, many scam e-mails started coming from other African countries.

How bad are spam e-mails? The May 3, 2003 issue of the USA Today reports that the number of incidents of spammers sending mass e-mailings have soared to about 7 million per month. In practical terms, a recent issue of the pcworld.com states that about 13 billion pieces of unsolicited commercial e-mails are sent each day, which represents about half of all e-mails sent. To stay ahead of efforts to stop spam e-mails, some spammers disguise e-mails to fool people into opening them. One popular way is to add "re" on the subject line as if it is a response to an earlier e-mail sent by innocent readers. One e-mail I received today had a subject line claiming "it is nice to meet you the other day" without "re". Wondering who could that be since I meet good people all the time, I opened the message only to find a link to another adult site. The May 18, 2003 issue of the Birmingham News speculates that fighting and sorting through spam e-mails cost U.S. firms alone about $10 billion a year.

Obviously, spammers spam to make money. Spammers typically pay about $1,200 for ten million addresses. They buy these addresses from spammer clubs. Three of the most popular items they promote through spam are believed pornography, digital cable descramblers, and herbal Viagra that is claimed to use natural ingredients to achieve the same results as the prescribed Viagra. The May 18, 2003 issue of the Birmingham News reports that Herbal Viagra companies pay spammers about $60 for every $150 order, and financial companies pay spammers $12 for each mortgage lead and $5 for each insurance referral. Many spammers make about $1,000 per week by investing no more than $10,000 in software and equipment.

Once a spamming system is set up, the marginal cost of sending one more unsolicited e-mail is virtually zero. The Birmingham News article states that "while old-fashioned junk mail sent via the post office requires a response rate of one in 100 in order to be profitable, spam mail requires a response rate of one in 100,000" to make the marketing effort profitable. Earlier in the year, the Fort-Worth Star-Telegram reported that a spammer mailed 10 million e-mails a day offering an eavesdropping software for $40, which led to 50 orders a day. For a response rate of only 0.000005 percent, the spammer earned $700,000 per year.

For ordinary people like myself, there are two aspects of spam e-mails that I hate. One is the fact that I have to delete many spam messages every single day without even looking at any of them. The other is the danger that I may delete important messages in the process of deleting spam e-mails. I once deleted all my important messages that I saved in the process of deleting 15 or so spam messages that I received during the night. I noticed that many spam messages were accompanied by a question at the end asking me to check if I wanted my name to be removed from further mailing. My able assistant advised me not to respond to it because it may make matters worse. It is clear that spammers went too far to be left alone unchecked.

In December 2003, the U.S. congress approved the first nationwide anti-spam legislation that President Bush signed into law. The Anti-slamming Amendments Act of 2003, which is an amendment to the Communications Act of 1934, would prohibit senders of unsolicited commercial e-mails from disguising their identity by using a false return address or misleading subject line. It also prohibits senders from harvesting addresses off web sites and requires such e-mails to include a mechanism so that recipients could block future mass mailings. The law allows ISPs sue spammers and state attorneys general sue on behalf of users. The most serious violators could receive fines of as much as $6 million and prison terms of up to five years.

How effective the new law will be in stopping spam messages remains to be seen. Consumer advocacy groups claim that it is doubtful that consumers will see a drop in advertisements for mortgage rates, impotence-fighting medicine and digital cable descramblers since these can still be considered legal under the new law. Also, the law requires labeling in the subject line only for adult-related content and not for all commercial content, making it difficult tp screen commercial e-mail. One interesting aspect of the new law is that it requires the Federal Trade Commission to study the feasibility of using bounty hunters to track down illegal spammers. Individuals who identify and locate spammers may receive at least 20 percent of any fines collected. Congress, however, decided not to implement the bounty hunter program immediately. Instead, it ordered FTC to take nine months to study the concept and report back.

I have no doubt that the war against spam has just begun, and I am happy that it did.

** Chang Se-moon is a professor at University of South Alabama and a member of the Korea Times Economic Editorial Board. E-mail : schang@jaguar1.usouthal.edu

What to Do When Private Development Hurts Neighbors

By Chang Se-moon
December 15, 2003

When an economy grows as rapidly as the Korean economy has been, there are numerous benefits for most Koreans such as new job opportunities, increased income and improved quality of life in general. Forgotten through the euphoria of the growing economy, however, are those who may suffer damages from development of private projects near their homes and properties.

For instance, construction of a tall building will cast a shadow on its neighbors who no longer will be able to enjoy sunlight; a new power plant is likely to pollute the waters that neighbors near the plant used to catch fish from or swim in; new chemical plants may pollute the air that neighbors may find offensive, if not dangerous, to their health; a waste disposal site will make neighboring properties less attractive; and construction of a new apartment complex may lower the value of single homes in the area. Development of public sector projects such as new highways is different at least in part because public sector projects are intended to benefit a large number of people as opposed to private sector projects that basically benefit their owners. The faster an economy grows, the more victims there will be who may lose from development of private projects adjacent to their properties. The question is what should be done about it.

Let me cite an actual example that is in progress. ExxonMobil proposed to build in Mobile, Alabama a liquefied natural gas (LNG) terminal with three domes with the storage capacity of each dome being about 4 billion cubic feet of natural gas that will be shipped in every four days. The 200-acre site is owned by the Alabama State Port Authority. There are four marine LNG import terminals in the lower 48 states of the United States. The four existing terminals are located in Boston (Massachusetts), Savannah (Georgia), Lake Charles (Louisiana) and Chesapeake Bay (Maryland). At least 18 more terminals are proposed in North America.

The total amount of projected construction expenditures of the proposed LNG storage facility in Mobile is $586.6 million. The construction will create 660 jobs for three years, and then support 258 jobs on a permanent basis. Construction activities will generate one-time tax revenues of $833,099 to Mobile County, $1,458,308 to the City of Mobile and $4,156,179 to the State of Alabama. In addition, the terminal will generate annual tax revenues of $2,983,699 for Mobile County, $180,908 for the City of Mobile, and $318,653 for the State of Alabama. With all these positive economic effects, shouldn’t everyone be happy? Not really.

The opposition came from the residents of the community adjacent to the property, the local environmentalist group, and the daily Mobile Register which is widely believed more friendly toward the environment than toward the business community. Opponents to the project have stressed potential dangers that the terminal and the tanker ships are alleged to pose to the community. The newspaper reported these dangers almost on a daily basis prior to the Oct. 28, 2003 approval of the deal by the Alabama State Port Authority. For instance, the newspaper has reported several times that an incident involving an LNG tanker ship from terrorism or human error could create a wall of fire more than a half-mile wide and capable of causing second-degree burns at least a mile away. The attack by the newspaper continued in December and will continue in the foreseeable future.

All the opposition converged to one request that an ``independent study’’ on the safety issue be conducted. Assuming that an independent study can be made that can satisfy both proponents and opponents at the same time, the timeline for such study may effectively end ExxonMobil’s plan to build the facility because earlier in 2003, ExxonMobil made a $12 billion agreement with Qatar to import LNG in 2008. Any delay caused by the study that some say will take as long as two years will make the proposed Mobile’s LNG facility not very useful.

The opposition spread to Boston and beyond. U.S. Rep. Edward Markey, D-Mass., who is a member of the U.S. House Homeland Security committee and whose jurisdiction contains one of the four LNG terminals, said on Nov. 7, 2003 that he sent letters to the Bush administration questioning the dangers that LPG tankers pose to populated areas. In the letters, Rep. Markey cited Mobile Register articles questioning the safety of the LNG terminal as well as tankers at the proposed facility in Mobile. A Dec. 9 article indicated that a local environmental group called Mobile Bay Watch was organizing a nationwide network to address the potential hazards of LNG. Opponents of the project filed a lawsuit on Oct. 28 only minutes after the approval of the deal by the Alabama State Port Authority, challenging its handling of the land option.

This may be a good time to introduce Ronald Coase, an economist on the faculty of the University of Chicago Law School, who won the Nobel prize in economics in 1991 for his work, which included what is known as the Coase theorem. The controversy involving the proposed LNG facility can be discussed in the context of the Coase theorem. The Coase theorem relates to externalities such as possible ill effects of the proposed LNG facility on the neighbors of the proposed site. The basic premise of the Coase theorem is that any decision or solution should be to maximize social gains.

According to Coase, the first step is to realize that an external cost is not simply a cost produced by one party and born by another. In almost all cases, the cost is a result of decisions made by both parties. Sulfur dioxide from a steel mill is an example of externalities. I would not be coughing if the steel mill were not pouring out sulfur dioxide. But the steel mill would do no damage to me if I did not happen to live down wind from it. The Alabama State Port Authority has been the owner of the proposed site for many years. Although there were homes near the site before the Port Authority became the site’s owner, many new homes were built in the area since the Port Authority became the site’s owner even if the possibility was always there for the site to be developed as an industrial site of unknown nature. Viewed this way, it is not altogether clear exactly who has caused the externality and who should bear the liability.

Coase has shown that an efficient solution to externalities can generally be achieved if the creator of the externality and the recipient of the externality get together and reach an agreement through bargaining, provided that transaction costs are low. Transaction costs include costs of searching for and identifying whom the neighbors are, costs of identifying all the facts relating to the dispute, and costs of developing negotiation strategies and actually working out deals that are acceptable to both parties. Coase claims that the externalities problem would be solved without government intervention if the transaction costs of arriving at the solution were kept low.

According to the Coase theorem, it may not be socially optimal to ask ExxonMobil to give up building the facility even if we assume that the legal rights are on the side of the neighbors. Instead, we may try to create an arrangement in which ExxonMobil can bargain with opponents to resolve the conflict. The role of the legal system should be limited to determining who should pay how much to whom without changing the socially optimal outcome, for example, without preventing the construction if the construction benefits society.

In the LNG facility case, it may be a little more complicated because emotions are involved. When I attended the Aug. 5, 2003 public meeting, opinions expressed by the opponents were ``We do not want you. Go away.’’ When parties demand an independent study on the safety of the facility including LNG tankers, I am not sure whether the intention is to find out facts so that the transaction costs can be lowered or to employ the demand as a tactic to stop the project.

How does this story relate to Korea? I would like everyone to think about all the positive contributions that private development projects have made to the Korean economy. At the same time, I would also like everyone to think about those who may have lost from the same development projects. When those people who lose from these projects raise a voice of concern, we should neither ignore them, nor support them with blind eyes. We need to find out facts on the potential damages and create an environment such as mediation or arbitration through which those who lose can be compensated without stopping the projects. There are too many important factors that can be brushed aside when the hostility between proponents and opponents of the project takes over the decision-making process.  ** Chang Se-moon is a professor at University of South Alabama, and a member of the Korea Times Economic Editorial Board.

Korean LPGA Fighters at Mobile

By Chang Se-moon
November 21, 2003

The 2003 LPGA Tournament of Champions was held Nov. 13-16 at Mobile’s Magnolia Grove golf course. Magnolia Grove is one of many quality courses designed by Robert Trent Jones. To qualify for the tournament, LPGA players should have won at least once during the past three years or be active Hall of Fame players. Because of the tough requirements, there is no cut at the end of the second day of play. Pak Se-ri won the tournament in 2001 and also in 2002.

From the public’s view, it is a wonderful tournament because one can see all the LPGA stars in one place. Although the course is as good as any course one can find anywhere, it is a public course where anyone can play at a reasonable greens fee of about $70 including the cart.

Twenty-nine players teed off on Nov. 13, including six from South Korea. Han Hee-won, who made her debut this year in the tournament, was the LPGA Rookie of the Year in 2001. Kim Mi-hyun, known as peanut because of her 5 feet 1 inch frame, is No. 2 in driving accuracy among all LPGA players, hitting 82 percent of her fairways. Pak Se-ri, who is No. 2 on the money list, No. 2 in scoring average at 69.96, and No. 2 in rounds under par at 58 of 82, is also second in the Rolex of the Year points. Gloria Park has two career victories and recorded a hole-in-one in the 2001 McDonald’s LPGA Championship. Grace Park ranks third on the money list this year at over $1,200,000 and leads LPGA players in birdies with 351. Finally, Ahn Shi-hyun made her debut in this tournament after she won the CJ Nine Bridges Classic on Cheju Island only about two weeks prior to this tournament.

The first big report in the Mobile Register was made on Nov. 9, with Pak Se-ri’s picture prominently displayed on a full page with ``Se Ri-Peat!’’ heading, encouraging Se-ri to win her third consecutive tournament. Mobile clearly likes Se-ri, and Se-ri, who speaks English fluently now, expressed her warm feelings toward Mobile by saying that ``the people there, the town, they like me a lot. It looks like they are really happy to see me and I’m really excited to go back because so many fans right there are waiting for me.’’ Se-ri’s picture was featured again on the day the tournament plays began, with headings ``Should everybody else just Pack it in?’’

Being the youngest and the latest addition to this tournament, Shi-hyun also received a nice publicity. When Shi-hyun won the CJ Nine Bridges Classic in Cheju Island, it was her first LPGA win that qualified her for the Mobile’s Tournament of Champions. As soon as Shi-hyun won the Cheju tournament plans were put into motion to get her to Mobile. ``Two letters were drafted and signed by LPGA Commissioner Ty Votaw after the tournament to help the process of the tour’s paperwork as well as application for a visa. Contact was made with the U.S. Embassy in Seoul to begin the visa application process,’’ the Register reported. Shi-hyun ``had her interview at the U.S. Embassy in Seoul on Nov. 10, obtaining her visa. On Nov. 11, she boarded a flight to Mobile.’’ On Nov. 13, she teed off at 11:09 a.m. with Wendy Doolan.

The first day was very windy with the wind gusting up to 25 miles per hour. Also, many people who played at the course only days before the tournament all said that the green was really fast. These pushed the first day average score of the field up to 75.9, six shots higher than last year’s first round average at 69.5. First day scores of Korean players were: Han Hee-won (72), Grace Park (75), Gloria Park (75), Kim Mi-hyun (76), Pak Se-ri (76), and Ahn Shi-hyun (79). Lorie Kane led the field at 70.

The seed for the eventual playoff was sown on the second day of the tournament. Han, who scored 72 on the first day, scored 71 on the second day making a total 143, one under par. Han made two long-distance putts to highlight her second round. ``She rolled in a 40-footer for birdie on No. 4 playing about a 10-foot break up and over a ridge. On No. 6, she dunked a 50-footer up the hill to a pin placement on the back shelf,’’ according to the Register. Delasin, who had identical scores with Han at 72 and 71, birdied three of her final five holes to join Han on top of the leader board. Kim Mi-hyun put together the best round of the tournament, a 4-under-par 68, even if she three-putted the first hole for a bogey. After the second day, scores of Korean players were: Han Hee-won (-1 and co-leader), Kim Mi-hyun (even), Grace Park (+3), Gloria Park (+4), Pak Se-ri (+5), and Ahn Shi-hyun (+10).

By the third day, the wind calmed down and players were getting used to the fast green. Delasin was one of many players who enjoyed a low score at 68 to claim a one-stroke lead over Han. Han either owned the lead outright or shared the lead beginning from the fourth hole until she bogeyed the 18th hole for a 69, conceding the top spot to Delasin going into the final round. Se-ri, on the other hand, birdied four of her first seven holes with an eventual 67 for the day to make a quick run at the leader board, while Grace Park also shot 67 for the day. The scores of Korean players at the end of the third day were: Han Hee-won (-4 and one shot behind Delasin), Kim Mi-hyun (-3), Grace Park (-2), Pak Se-ri (even), Gloria Park (+2), and Ahn Shi-hyun (+13).

Sunday came and the Korean players made gallant efforts. Se-ri made an early run with birdies on No. 2, No. 4 and No. 6 to chase the leader by only three shots with 12 holes to play. However, Se-ri had a double bogey at No. 7 and a bogey at No. 8, ending her two-year rein of the Tournament of Champions. Mi-hyun had birdies at No. 4, No. 9, No. 11 and No. 13 and was only two shots behind the leader with five holes to play. However, she could not get another birdie the rest of the way. Grace Park scored birdies at No. 3, No. 4, No. 6, and No. 8 to put her within challenging distance of the leader, but her third shot at No. 9 hit the limb of a tree handing her a double bogey and ending her chase for the championship. Park summed it by saying, ``That’s been the story of my year.’’

That left Han, who was grouped in the final pairing with Delasin. Both had a chance for a birdie on the final hole to win the championship but both came up short. Han missed a 30-footer, while Delasin missed a 20-footer. ``They returned to the 18th hole for the playoff and both left themselves with much better birdie opportunities, Han from 10 feet and Delasin from 8 feet. Han’s putt stopped 2 inches from the center of the cup, giving Delasin a second putt to clinch the title. ``She’s a great fighter,’’ Delasin said of Han.

I would like to add that all Korean LPGA players who competed in Mobile were great fighters.
** Chang Se-moon is a professor at University of South Alabama, and a member of the Korea Times Economic Editorial Board.

Hyundai Alabama's Suppliers and Host Community

By Chang Se-moon
November 6, 2003

On April 2, 2002, Hyundai Motor announced that it selected a site in Alabama for its new assembly plant in the United States. The construction of the $1.2 billion Hyundai Motor Manufacturing Alabama facility is well in progress and will produce up to 300,000 vehicles annually on its 2 million square feet of space. Hyundai Alabama will start making Sonata sedans from 2005, and Santa Fe sport-utility vehicles from 2006. It is also reported that Hyundai will continue to make the Santa Fe in Korea until the end of 2005. In June, Hyundai Alabama was provided special free trade zone status by the U.S. Department of Commerce's Foreign Trade Board in case automobiles manufactured at the Alabama plant are exported in future years.

In a broad view, Hyundai Alabama represents another effort by foreign automakers, which include Toyota, Honda, Nissan and now Hyundai, to expand their auto-making capacity by taking competitive advantages especially in the use of non-union workers. These workers are fondly called non-union team members at these plants, and are expected to work harder for about the same pay but less generous benefits than the unionized employees at U.S. automakers.

These workers, including those at Alabama's Mercedes Benz plant, have repeatedly rejected offers to join the United Auto Workers. These days, one in seven auto assembly workers is believed to be non-union. The share of non-union workers at the automobile assembly plants is expected to increase in years to come.

Most, if not all, foreign automakers are located in the eight southern states. These states and their projected production capacity in 2005 are: Kentucky (1,200,000), Tennessee (770,000), Alabama (760,000), Georgia (500,000), Mississippi (250,000), Texas (250,000), Virginia (240,000), Louisiana (200,000), and South Carolina (120,000).

All Koreans have reasons to hope that Hyundai Alabama will succeed. First of all, there were five automakers in South Korea less than ten years ago: Hyundai, Daewoo, Kia, Ssangyong, and Samsung. These days, only one _ Hyundai-Kia _ is prospering, indicating that the fortunes of automakers can change quickly.

Secondly, General Motors, Ford Motor, and Chrysler, known collectively as the `Big Three,' are fighting back to regain or preserve their eroding market share. Leaders of the Big Three automakers in the U.S. and the United Auto Workers announced new labor contracts early in October. Through the new contracts, General Motors, Ford Motor, and Chrysler won the right to close or sell at least 10 underutilized U.S. plants, leading to the layoff of about 50,000 workers over the next four years.

The United Nations' Comtrade data indicate that three countries increased their export share of the North American automobile market from 1985 to 2000. The three countries are Mexico, which increased its export share from 0.4 percent in 1985 to 12.2 percent in 2000, Canada, which increased its export share from 23.7 percent to 29.0 percent, and South Korea, which increased its export share 0.6 percent to 3.7 percent.

These increases are mostly at the expense of Japan whose export share to the North American market decreased from 41.3 percent in 1985 to 28.1 percent in 2000.

Importantly, other countries such as China, India, and a number of transition economies are expected to soon compete in the world auto market. China, for instance, now produces about 2 million cars and trucks, but the number may reach 5 million by 2010.

Among the many improvements Hyundai Alabama will have to carry out successfully for its long-term survival is its relations to the host community. This aspect of Hyundai Alabama's operation is more complicated than it first appears. As of October, no less than 22 suppliers of Hyundai Alabama announced that they would be located in Alabama, with their combined employment easily exceeding the 2,000 workers that the Hyundai Alabama's Montgomery plant will eventually hire.

Three of the 22 suppliers are located at the northern end of the state: Delphi Saginaw Steering (catalysts) in Athens; Engelhard (catalysts) in Huntsville; and Hisan (brake and fuel lines) in Scottsboro. Athens and Scottsboro are small towns. Only Huntsville is a large city and is well known for its space technology and several high-tech companies.

Eight others are located in or very close to large cities with seven of them being located almost adjacent to Montgomery in which Hyundai Alabama is located: AP Tech (glass) in Alabaster, which is practically a suburb of Birmingham; Arvin Meritor (door modules) in Montgomery; Mobis Alabama in Montgomery making font- and rear-chassis modules and instrument clusters; Daehan Solution (insulation parts) in Tyson, which is very near Montgomery; Sejong Industrial (mufflers, exhaust systems) in Fort Deposit, which is also very near to Montgomery; Lear (seat assembly) in Montgomery; T&WA (tire wheel assembly) in Montgomery; and Venture Industries in Prattville making dashboards, body panels and front end systems. Prattville is a suburb of Montgomery. Venture Industries is expected to create 600 jobs with its $100 million new investment, while Mobis Alabama is expected to create 430 jobs with its $35 million new investment. In addition, Daehan Solution is projected to create 180 jobs with its $25 million capital investment.

The remaining 11 suppliers will be located in small towns within an hour's drive of Hyundai Alabama's main plant in Montgomery. The 11 suppliers and the products they will produce, shown in parentheses, are: Dongwon (door frames) in Sardis; Halla Climate Control (heating and air conditioning units) in Shorter; HS R&A (weather stripping, rubber tubing, hoses) in Enterprise; Hwashin (chassis, body parts) in Greenville; Hysco America (steel sheets and coil) also in Greenville; Lear/Kyung Shin (wire harnesses) in Selma; Mando (braking, suspension, and steering systems) in Opelika; PPG (glass) in Talladega; Samlip Industrial (lightning parts and systems) in Alexander City; Shin Young Industrial Metals (stamped metal parts) in Luverne; and Teksid Aluminum Components (engine components) in Sylacauga. Among these 11 firms, Halla Climate Control, HS R&A, Hwashin, Hysco America, Mando, and Shin Young Industrial Metals are projected to create 200, 350, 400, 125, 450, and 400 jobs, respectively.

The fact that so many of these suppliers will be located in small towns with no more than a few thousand residents raises an interesting, albeit very important, question as to how Korean employees will adapt to America's rural life in the Deep South. How well employees of these Korean businesses adapt to the America's rural life will go a long way toward determining the success of these businesses and future investors from Korea.

I am hoping that employees of these Hyundai suppliers make extra efforts to be friendly to everyone in the community: make charitable contributions on a regular basis; participate in local festivals and other community affairs; not take any criticism personally; and understand that rural Americans will consider these employees as mirrors through which the Americans will judge Korea.

I can assure you that Alabama's rural Americans will welcome all Korean employees. It is important to make the feeling mutual and keep it strong for years to come.

When Will Economy Revive?
By Chang Se-moon
October 23, 2003

Blue Chip Economic Indicators is best known for its consensus macroeconomic forecasts. Each month since 1977, Blue Chip Economic Indicators has polled America’s top business economists, collecting their forecasts of the U.S. economy. Blue Chip’s 20-page monthly report on U.S. economic forecasts has a $627 price tag for an annual subscription, limiting its subscription list to relatively large, if not wealthy, businesses and educational institutions.

An interesting article by Kevin Kliesen that was published in the September/October 2003 issue of the Federal Reserve Bank of St. Louis Review tells us that when Blue Chip forecasters were asked on September 10, 2001 ``Has the U.S. slipped into a recession?’’ only 13 percent said yes while 87 percent said no. However, the percentages were almost totally reversed just nine days later after the September 11 terrorist attacks. As many of us know by now, the National Bureau of Economic Research ruled that the U.S. economy slipped into a recession in March 2001 and the recession ended in November 2001.

Note that seven months after the recession began, 87 percent of respondents were not aware that the economy was in recession. Put differently, the recession ended only two months after 87 percent of Blue Chip forecasters stated that the recession was yet to begin. It may also be noted that it was late summer of 2003 when the NBER finally and formally ruled that the recession ended in November 2001.

The point is that it is not so important for us to know whether an economy is in a technical recession as it is for us to know whether an economy is slow or robust. The difference between an economy that grows at an annual rate of 5 percent and an economy that grows at an annual rate of 0.5 percent is significant even if the economy is not defined as being in recession in both cases. The difference between an economy that is in recession with a growth rate of -0.5 percent and an economy that is not in a recession by growing at an annual rate of +0.5 percent, however, is not significant.

There is another reason why the classification of an economy being in a technical recession is not as important as it is to know that the economy is slow. Preliminary GDP estimates made by the U.S. Department of Commerce in late 2001 indicated that the U.S. economy grew during the first two quarters of 2001 and decreased only during the third quarter. Without the benefit of information on revised GDP estimates, the NBER ruled courageously in November 2001 that the U.S. economy began its recession in March 2001. When GDP estimates were revised in July 2002, the revised estimates finally were indicated to have decreased during the first three quarters of 2001 and thus confirmed that the U.S. economy slipped into recession in March 2001.

As everyone in South Korea knows, the Korean economy has been quite slow owing to slow consumption expenditures by consumers and low facility investment by businesses. Exports have also been slow with the exception of those to China. The growth rate for 2003 has been adjusted downward to 2.6 percent by KDI and 2.7 percent by KERI. The growth rate for 2004 is projected to be rather low for Korean standards at 4.8 percent by KDI and 4.4 percent by KERI. Since KDI, KERI, the Bank of Korea and other economic research organizations in Korea are doing good work in tracking and projecting the Korea’s economy, I will limit my discussion in this article to the prospects of the U.S. economy that can play a major role in determining the amount of South Korea’s exports not only to the U.S. but also to many other countries that depend heavily on the health of the U.S. economy.

On Oct. 13, Duncan Meldrum, chief economist of Air Products & Chemicals and this year’s president of the National Association of Business Economists (NABE), made a presentation on the U.S. economic outlook during the annual meeting of the national association of university research center directors in New Orleans. The NABE is the largest association of business economists in the U.S. with members coming from all segments of the U.S. economy.

The latest survey of NABE members clearly points toward a strong recovery that already began during the third quarter of this year. The growth rate of the U.S. economy during the third quarter was initially projected at a modest 3.7 percent annual rate, but was raised to 4.5 percent by NABE members. A recent announcement by Blue Chip Economic Indicators is also in agreement with the 4.5 percent growth rate. The USA Today panel of economists felt that the third quarter growth rate of the U.S. economy was likely higher at 5.4 percent. Other private economists put the figure as high as 6 percent.

All indications are that the U.S. economy grew at a fast pace during the third quarter and the trend is expected to continue for the rest of this year and the first half of the next. I said it was a fast pace because the growth rate of the U.S. economy during 2002 was 2.4 percent and the growth rate for the past 100 years averaged 3 percent.

NABE’s Meldrum feels that the tax cut which was enacted earlier this year began to have an impact on the economy when households received their tax rebate checks in and around July. Meldrum’s survey also indicates that business inventory investment and facility investment will increase significantly during 2004 and thus sustain the growth of the U.S. economy during 2004. This most likely means that the push for increased exports from South Korea has already begun and will continue through the first half of next year.

There are a couple of dark clouds that will cast shadows upon the U.S. economy sometime later during the coming year. One is the federal budget deficit. The deficit of the U.S. government is estimated at $374 billion during FY 2002-2003, which just ended, and is projected at $480 billion during FY 2003-2004, which just began. Such a huge federal deficit may eventually crowd private investment out of the financial market by raising interest rates. Meldrum projects the Federal Reserve will consider raising interest rates sometime during the second quarter of 2004.

Higher interest rates may also be prompted by increased business profits that may lead bondholders to shift their asset holdings from bonds to stocks. As bondholders sell their bonds, bond prices will fall. As bond prices fall, interest rates will rise since they move in the opposite direction.

The other cloud on the horizon for the U.S. economy is the large trade deficit, which may reach as much as $500 billion annually. This will lead to a depreciation of the dollar, which already began, and will continue to increase U.S. exports in the short run. The large trade deficit may in the long run prompt prices to inch upward through higher import prices. The falling value of the dollar as well as the rising value of the South Korean currency will offset some of the increasing demand for South Korean products by U.S. consumers.

In other words, the growing U.S. economy will increase South Korea’s exports, but the rising value of the South Korean currency will slow the increase somewhat.

Finally, the future of the U.S. economy, as well as the South Korean economy, depends on cyclical factors as well as non-cyclical factors. The optimistic view of future economic conditions described in this article is based on improvements in cyclical factors. The long-term ability to sustain healthy growth requires improvements in non-cyclical factors, which include the reduction of the twin deficits for the U.S. economy, and continuing structural reform, improved labor-management relations and continuing research & development for the Korean economy.

Yuan's Possible Appreciation
By Chang Se-moon
October 8, 2003

There has been a growing pressure for China to revalue its currency in recent months, highlighted by the early September visit to China by U.S. Treasury Secretary John Snow for such efforts. Many media reports indicate the reluctance of the Chinese leaders to revalue its currency. Media reports also indicate opposing impacts on Korea if China does revalue its currency. Issues related to foreign exchange rates are rarely easy enough for the general public to understand. Let me try to explain issues and impacts of the possible revaluation of the Chinese currency as simply as possible.

The Chinese currency is called yuan or renminbi. Let’s just call it yuan. In 1982, yuan per dollar was 1.8973. In other words, one dollar was equal to 1.8973 yuan. During the next 12 years, the dollar became more valuable and its value against yuan appreciated to 5.7767 yuan per dollar in 1993 and 8.6401 per dollar in 1994. Correspondingly, the yuan became less valuable against the dollar and depreciated to the extent that 8.6401 yuan was needed to buy one dollar in 1994. Remember that only 1.8973 yuan was needed to buy one dollar in 1982.

The exchange rate between yuan and dollar has remained the same since 1994 at about 8.28 yuan per dollar. This is because China has pegged the yuan to the dollar since 1994 and allowed yuan to be traded within a narrow band of 8.276 and 8.28 to the dollar. Some countries prefer to have a stable exchange rate to remove uncertainty from foreign trade and one way of stabilizing the exchange rate is to peg own currency such as yuan to a more stable currency such as the dollar.

Pegging the exchange rate at 8.28 yuan per dollar is not like flying an airplane on an auto pilot. Government policy makers have to continue to intervene in the foreign exchange market to maintain the pegged exchange rate. The Chinese economy grew rapidly during the 1990s due mainly to rapidly-rising exports of products produced with China’s low wages. As China’s exports to the U.S. rose more than China’s imports from the U.S., for example, the demand for yuan increased because China’s exporters either wanted to be paid in yuan or had to be paid in yuan due to government regulation. More dollars flew to China, and the supply of the dollar in China became greater than the demand for the dollar. The dollar became less valuable and thus depreciated from 8.28 yuan per dollar to, say, 6 yuan per dollar. Because the yuan appreciated and the dollar depreciated, less yuan was needed to buy one dollar. This year, the U.S. trade deficit against China is projected to be $130 billion, clearly forcing the value of the dollar to fall against the yuan.

Strange thing happened. The exchange rate remained the same at 8.28 per dollar even with China’s huge trade surplus against the U.S. This is because the yuan is not allowed to change through pegging by the Chinese government. Obviously, this is not natural and begs for many questions.

First, why does China peg the exchange rate at 8.28 yuan per dollar rather than allow the yuan to appreciate to, say, 6 yuan per dollar? The main reason is that Chinese exports are cheaper at 8.28 yuan per dollar than they are at 6 yuan per dollar since the U.S. consumers can buy a greater quantity of Chinese products at 8.28 yuan per dollar than at 6 yuan per dollar. China does not want yuan to appreciate because the appreciation of the yuan will lead to a decrease in Chinese exports and a loss of jobs in the export goods sector in China.

Second, how can China keep the exchange rate at 8.28 yuan per dollar when the market forces try to change it to, say, 6 yuan per dollar? China keeps the exchange rate at 8.28 yuan per dollar by buying all the surplus dollars flowing into China. To buy the dollars, China has to pay comparable amount of yuan to Chinese exporters who are paid dollars by the U.S. buyers of Chinese exports. China requires all dollars to be deposited in its central bank to make the pegging work. The Chinese central bank is reported to spend approximately $600 million a day to maintain the pegged exchange rate. One of the by-products of this policy is the unintended increase in domestic money supply in China that can be inflationary, which may raise the prices of Chinese products partially offsetting the pressure to appreciate the yuan.

Third, how does the exchange rate pegged at 8.28 yuan per dollar affect foreign direct investment in China? The exchange rate that is pegged at 8.28 yuan per dollar rather than floated freely at, say, 6 yuan per dollar makes Chinese exports arbitrarily cheaper and thus encourages many foreign firms to increase their foreign direct investment in China so that they can increase their sales taking advantage of the arbitrarily depreciated Chinese currency. Some argue that the pegged exchange rate makes Chinese exports cheaper by as much as 40 percent.

Fourth, why is the U.S. so adamant in pressuring China to appreciate the yuan? This is because leaders in the U.S. manufacturing industries believe that the pegged exchange rate led to a decrease in the U.S. manufacturing jobs by as many as 2.5 million during the past three years. The alleged decrease is caused partly by imports from China that led to closing of U.S. businesses, and partly by U.S. businesses that invested in China rather than in the U.S.

Fifth, is there any role for speculators on foreign exchange markets to play in the China’s pegged exchange rate? Yes, there is. Assume that I have $100. Assume also that there are no transactions cost such as commissions or insurance fees. At 8 yuan per dollar, I am transferring my $100 to China and buy 800 yuan, expecting that China will appreciate its currency soon. Assume that China does appreciate yuan by changing the exchange rate from 8 yuan per dollar to 6 yuan per dollar. With 800 yuan that I have, I can now buy $133, obtained as 800 divided by 6. I am making $33 with my $100 solely because China appreciates its currency from 8 yuan to 6 yuan to the dollar. A large amount of foreign currencies is believed to have flown into China in recent months exactly for the reason.

Sixth, how does the flow of foreign currencies to China affect China’s property market? As explained earlier, the Chinese central bank has to buy excess foreign currencies to maintain the exchange rate at the pegged level. As the Chinese central bank buys these currencies, domestic money supply increases and market rates of interest fall. These cheap loans have created a boom in real estate market because, as many Koreans know too well, the easiest way of making money in an inflationary period is to buy real estate properties.

Can we forget about the dollar and talk about how the yuan’s appreciation, if it comes, will affect businesses in Korea? Unfortunately, the answer is a little complicated. Let me see whether I can simplify the answer a little bit.

Clearly, when the value of the yuan rises in the global foreign exchange market, the higher value of the yuan will make the prices of China’s exports to rise. Korean exporters who compete directly against China will benefit through increased exports, increased production, and increased employment. These benefits will be offset partially by exports of Korean products produced in China since their prices in the global market will increase in direct proportion to the increase in the yuan’s value.

How much net benefits will Korea enjoy when yuan is appreciated? It depends on how much appreciation of the yuan there is in relation to the Korean currency that has been appreciating against the dollar in recent months. No one believes that China will freely float its currency anytime soon. Also, not too many people believe that China will change the pegged exchange rate to the level that is close to the freely floating rate. If China increases the band of fluctuation that allows the yuan to appreciate and the yuan’s appreciation is greater than the rate of appreciation of the Korean currency, Korea will benefit. Let us all wait and see how it develops.

Impact of Typhoon Maemi on Korean Economy

By Chang Se-moon
September 18, 2003

About a year ago, South Korea was hit by Typhoon Rusa, which at that time was dubbed by the news media as the Korea’s worst natural disaster in half a century, with over 200 casualties and an estimated loss of $3.4 billion. On Sept. 12 this year, Typhoon Maemi hit the southeastern part of the country with winds up to 135 miles per hour causing a huge amount of damage. Maemi is reported to be the most powerful typhoon to hit the Korean peninsula since records began almost 100 years ago.

Preliminary estimates made by the Ministry of Commerce, Industry and Energy indicate that 224 companies in eight industrial complexes suffered damages from the disaster. About 54 firms in the Masan Free Trade Area lost 236.6 billion won and the combined losses of 619 small- and medium-size manufacturers were 28.22 billion won. Property damage alone was $1.3 billion. Typhoon Maemi left more than 120 people either died or missing, and over 9,000 were left homeless. In addition, more than 43,000 acres of rice paddies, orchards, and other farmland were flooded, disrupting the future supply of many farm products and hurting farmers in the process. I am sure that damage figures will continue to be updated and rise.

Responses to the natural disaster were swift also. The Ministry of Commerce, Industry and Energy has decided to donate a 30 billion won contingency fund previously set aside for fostering small manufacturing companies outside of Seoul to companies that suffered damages from the typhoon, and loan a maximum of 1 billion won to small companies that were flooded. It will also provide special guarantees for loans of up to 500 million won for the damaged firms through credit guarantee funds or technology guarantee funds, and rebuild damaged public facilities. The Korea Electric Power Corporation decided to exempt Maemi’s victims from paying September’s electricity charges if their homes and offices were destroyed, and reduce electricity payments by 50 percent for those who suffered damage to their homes and factories. So far, the government plans to spend $1.4 trillion won (about $1.2 billion) for compensation of victims as well as for recovery activities.

Private donations also started flowing in. Samsung Group and LG Group, for instance, delivered 10 billion won and 5 billion won, respectively, to the National Association for Disaster Relief. LG Group also promised to repair home appliances free of charge and provide materials needed for rebuilding the villages, including wallpaper and flooring materials produced by LG Chem. Donations by many other businesses and individuals are continuing to pour in.

One important question is how Typhoon Maemi will affect the economy in the long run. The typhoon damaged many industrial facilities, including the nation’s transportation infrastructure, especially its overseas container business. There is little doubt that the typhoon dealt a severe blow to South Korea’s export industries such as electronics companies, shipbuilding, petrochemicals, property insurers and others. LG Electronics and Hyundai Heavy Industries are just two of many companies that were hit hard by Typhoon Maemi.

In response to the loss in exports, economists began to hint at lowering the projected growth rate for the economy. The government previously set this year’s growth target at 3.5 percent, while both the Bank of Korea and the Korea Development Institute projected a 3.1 percent growth rate for this year. The central bank is likely to lower its current 3.1 percent economic growth forecast for this year down to around 2 percent, owing at least in part to Typhoon Maemi. Others are expected to follow.

There may be a piece of good news in that the long-term effects of a natural disaster are often not as bad as many fear immediately after it happens.

From the early evening hours of Sept. 12, 1979 until the wee hours of the next morning, Hurricane Frederic passed through the coastal counties of Alabama, Mississippi and Florida, with sustained wind speeds exceeding 115 miles per hour. The U.S. Army Corps of Engineers put the total property damage and other losses at $2.26 billion in 1979 dollars. By the end of 1980, the coastal counties of Alabama had received about $670 million in outside money for all recovery activities. According to my calculations, these outside recovery dollars led to an increase in the local government revenue by 6.43 percent beyond and above its normal growth during the 12 months following the hurricane hit. In addition, the Alabama beach area experienced a rapid post-hurricane construction boom that lasted many years.

The finding that a negative short-term post-disaster impact is likely to be followed by long-term positive impacts through the influx of recovery funds has been corroborated by other scholars. The positive impact of typhoons on the tax revenues of the local government, however, depends on the revenue structure of the local government. The positive revenue impact will be realized only if the local government has a sales tax or a value-added tax of its own that is levied on sales of recovery materials and services.

I expect the negative economic impact of Maemi to last until the end of this year, and the economy of the areas hit hard by Typhoon Maemi will recover rather quickly from the beginning of the next year, if not sooner, through the influx of the government’s emergency appropriation and private donations. The only unknown in this analysis relates to how soon the export sector recovers. If export industries recover soon as I expect them to, the negative impact of Typhoon Maemi on the economy will be short-lived.

To understand my hypothesis that the economy will recover rather quickly from Typhoon Maemi’s damage, it is important to note that gross national product (GDP) includes the value of the flow of goods and services needed for recovery activities but excludes from its estimation the value of lost assets. For instance, the value of damaged highways and bridges is not subtracted from GDP, while the value of construction activities for repairing the damaged highways and bridges is added to GDP.

My optimistic assessment of the post-Maemi economy does not mean that everyone will benefit from recovery funds and be happy. It won’t be long before we read news reports on some victims of Typhoon Maemi complaining why they were given so little in comparison to victims in other, for instance, urban areas. Korea may want to consider a more structured solution to natural disasters in terms of a national flood insurance since a large portion of the losses from Maemi will be through post-typhoon floods in addition to damage caused by the wind.

The cornerstone of managing flood problems is national flood insurance in conjunction with the requirement of land-use control. Flood damage can be so massive that private insurance companies usually avoid insuring private properties against losses from floods. This reluctance by private insurance firms leaves the national flood insurance program as the only viable option. The national program is a way of sharing the risk of flood losses through a program of flood insurance to complement and encourage preventive measures. Flood insurance has to be accompanied by effective land-use measures that discourage the use of flood-prone areas. Otherwise, the cost of flood insurance may increase rapidly.

Sexual Harassment Complaints
By Chang Se-moon
September 7, 2003

It is easy, perhaps too easy, to take a high moral ground by saying that sexual harassment is bad and no one should do it. This is because the term, sexual harassment, encompasses the wide range of human behavior between members of the two sexes, and sometimes between members of the same sex, that I believe, cannot be lumped into one simple terminology. No matter how one defines it, sexual harassment has been with us for hundreds of years and will be for hundreds more. Only the actors and actresses will change.

The Korean Ministry of Labor reports that complaints of sexual harassment to its Office for Equal Employment have more than doubled since 2000 when only 385 complaints were filed. In October last year, the Ministry of Gender Equality opened an Anti-Sexual Harassment Clinic, stating that the lack of understanding on the issue was a serious matter. A recent conversation I had with a leading official in the Korean Chamber of Commerce in the U.S. indicated that many Korean businesses are busy taking care of sexual harassment complaints by U.S. female employees against Korean managers.

One of the most publicized cases was the sexual harassment class action suit that the U.S. Equal Employment Opportunity Commission filed against the Mitsubishi Motor North American Division in 1996. The case was prompted by 350 women who alleged that male co-workers and supervisors kissed and fondled them, demanded sexual favors, and retaliated against those who refused. On June 10, 1998, Mitsubishi settled the case by agreeing to pay $34 million, shared by 350 women who worked at the Illinois plant.

Within the past three months alone, several incidents of sexual harassment involving military personnel have been reported in Korean newspapers. For instance, a 25-year old female Korean worker at Camp Henry in Taegu filed a complaint against a 37-year old male U.S. employee, claiming that he sexually assaulted her when she refused to have group sex. In another instance, an army sergeant of an engineering battalion working on the South-North Korean railroad was arrested for allegedly breaking into a female officer’s tent with a razor blade at dawn and sexually molesting her by touching her stomach under her clothes while she was sleeping. In another case, an army lieutenant colonel from a medical unit was arrested on July 15 on charges of sexually assaulting a subordinate female officer. In yet another case, a 21-year-old private, Kim, jumped from his apartment building in Uijongbu on July 9 and killed himself. Mr. Kim reportedly committed suicide after his superiors sexually assaulted him every night in their barracks by touching his genitals.

Several high-profile civilian cases have been reported here in recent years too. For instance, a female employee at the Korea Institute for Industrial Economics and Trade accused the then KIET’s president of sexually touching her while taking her to a mountain resort in his car. She claimed that her boss caressed her hand and face while suggesting that they go to the Sorak Mountains on the east coast. In another instance, a former student activist, Lim Soo-kyong, was reported to have told reporters that the so-called ``386 generation politicians’ who claim to be clean of any corruption drank heavily with hostesses, with suggestions of an alleged sexual scandal, especially on May 18 which commemorates a tragic period in Korean history.

Efforts to curb sexual harassment have increased in recent years. In response to growing incidences of wonjo kyoje, buying sex from teenage girls especially minors, the identities of the perpetrators including names, ages, and occupations have been revealed since 2001 on the website of the Korean Commission on Youth Protection (KCYP) and bulletin boards of its district offices nationwide. According to the Act on the Protection of Youth Against Sex Offenses, those who bought sex from a minor have to pay 20 million won (about $17,000) in fines or serve up to 3 years in prison. Those responsible for arranging the illicit acts face a fine of up to 30 million won (about $25,000) or a prison sentence of up to 5 years. Teenagers who sell sex are exempted from criminal convictions and their identities are not released for their protection.

When the Seoul District Court ruled in favor of the plaintiffs in a sexual harassment case filed by 40 female employees against Hotel Lotte, ordering the company to pay compensation to some of the victims, the Court made clear that routine educational sessions on preventive measures were not enough. A couple of years ago for the first time in history, the Seoul National University expelled a male student for unwanted physical contact with at least eight female students, following a decision of the school's Student Disciplinary Committee. The expelled student claimed that all contact was consensual.

About ten years ago a group of twelve women decided to challenge the Korea’s ``male superiority mentality,’’ a possible breeding ground for sexual harassment as well as violence against Korean women, by establishing the Korea Sexual Violence Relief Center (KSVRC). The Center provides numerous services to victims of sexual violence such as extensive psychological, legal, and medical counseling, a 24-hour crisis hotline, and a shelter for young victims of incest. The Center is actively involved in an education program to educate school children and the general public about sexual violence.

Well, what’s the point?

Obviously, there are clear cases of violence and harassment that occur against women when males overcome or ignore their clearly expressed lack of consent. There is no doubt that should be punished to the full extent of the law. Then there are cases in which males may misread the overture of females and become aggressive beyond what female partners may have had in mind. Then there are cases where males touch females who are no strangers to them, thinking that these females do not mind being touched. Then there are cases where males touch females in response to the females’ friendly gesture believing that the touch was invited.

The cases become complicated when the contact is non-aggressive or casual, is considered by many females as being innocent or a non-issue, but is perceived as harassment by some who report to the supervisor. The cases become more complicated when accusers are alleged to suffer what the defense attorneys call a ``borderline personality,’’ which in plain English means an unstable personality. The cases become even more complicated if the supervisor takes advantage of the situation by punishing the alleged aggressor whom the supervisor does not like, when in fact all that the victim wanted was a simple apology. Like many other aspects of life, there does not seem to be a simple solution.

I do not believe there will be any more sexual harassment incidents in the future than there have been in the past. Due to changing times and changing values thereof, however, the number of sexual harassment cases in Korea that are reported or revealed to the public will increase significantly in the foreseeable future. The type of sex-related violations of law will also change. Here in Mobile (Alabama), a Baltimore medical doctor was arrested last May after allegedly coming to Mobile to meet a 15-year old girl for sex that was arranged through the Internet. If convicted, the doctor who is only 32 years old and waiting for trial, faces as many as 30 years in prison.

I expect to see a day when prominent Koreans visiting room salons and other places for adult entertainment in Korea are accused of sexual harassment, if not rape, by their female partners. I don’t mean harassment inside room salons and other similar places. I mean accusations of harassment after their visit to love hotels upon mutual agreement. Any defense based on consensual sex would be risky at best. Talking about consensual sex, the alleged rape of Desiree Washington by Mike Tyson occurred in Tyson’s hotel room in 1991 when the beauty contester voluntarily joined Tyson in an Indianapolis hotel room. An alleged rape this year of a 19-year old woman in Colorado by Los Angeles Lakers All-Star Kobe Bryant also occurred when the woman voluntarily entered Bryant’s hotel room in the night. Both Tyson and Bryant claimed that the sex was consensual.

Simple Facts on Labor Relations
By Chang Se-moon
August 29, 2003

There are some basic facts I feel everyone should keep in mind when they deal with labor-management issues.

The basic facts are: a) that labor unions in Korea have made a tremendous contribution toward Korea’s rapid economic growth during the past three decades; b) that if wages increase, there will be fewer jobs unless wage increases are accompanied by better productivity or higher product prices; c) that higher wages for union workers may lower wages for non-union workers in the supply channel, forcing higher union wages to be paid with reduced non-union wages, especially if a product’s market is very competitive; d) that the primary determinant of productivity is capital investment; e) that every labor-management dispute has to be settled within the law no matter what the nature of the dispute is; f) that global competition, especially from low wage economies such as China, are a new threat to the Korean economy that pays higher wages although wages in Korea may not necessarily be very high; g) that employers will try to outsource their needs to reduce costs especially if labor-management disputes cannot be settled peacefully; and h) if all else fails, employers will relocate their operations to lower cost countries.

It has been reported that since 1995, manufacturing wages in Korea have increased 50 percent, those in Japan 5 percent and in the United States 17 percent. Perhaps more importantly, hourly wages for workers in Korea are seven to eight times higher than for Chinese workers. The higher wages in Korea led Korea’s labor intensive industries such as shoes, textiles, cell phones, automobiles and machine parts to search for new locations overseas. Samsung Electronics, for instance, has already moved more than half of its production abroad and LG Electronics has several plants in China.

The high manufacturing wages in Korea do not necessary mean these wages are high by global standards. A recent survey by the U.S. Bureau of Labor Statistics indicates that the hourly compensation cost for production workers, including non-union workers, in 2001 was $20.32 in the U.S., $19.59 in Japan, $8.09 for Korea, $2.34 for Mexico and $5.70 for Taiwan. However, high wages should always be accompanied by high worker productivity. When rising wages are not accompanied by better productivity, production costs increase and companies search for ways to trim costs. The five-day workweek that Hyundai Motor just granted to its workers with no compensating increase in productivity or decrease in other labor costs has exactly the same effect on the company’s production costs as higher wages unaccompanied by better productivity. The five-day workweek legislation being reviewed by the National Assembly will also have the same effect if it is unaccompanied by concessions elsewhere.

Note that the Hyundai Motor chose to build its new assembly plant in Alabama last year in part because the state of Alabama promised the enforcement of its right-to-work laws. The right-to-work laws do not mean that workers cannot organize labor unions. All it means is that individual workers have the freedom to join or not join a union. In fact, the Mercedes factory in Alabama has been a target of the United Auto Workers ever since production began in 1996. The plant, which manufactures M-class sport utility vehicles, employs about 2,000 workers and is undergoing a $600 million expansion that will double its workforce by 2005. The UAW’s previous recruiting efforts have not drawn much support from Mercedes workers who are treated well by the company.

Poor labor-management relations tend to prompt not only Korean firms to consider relocating overseas, but also foreign firms in Korea to consider limiting their investment in Korea. It is widely believed that foreign investors lost faith in the Korean economy after the government failed to deal firmly with the strike at Chohung Bank, watched widely as one of early tests of the Roh administration’s handling of labor issues. Tougher policies by the government on subsequent strikes by nurses, railroad workers and now cargo workers have done little to ease the concerns of foreign investors in Korea.

For example, leaders of the Seoul Japan Club, with 300-plus Japanese company employees in Korea as members, openly criticized the pro-union policies of the Korean government. They went as far as to characterize the government's policy as an obstacle to foreign investment. Dietrich von Hanstein, president of the Korean German Chamber of Commerce and Industry, reportedly said that he had not seen so many strikes during his four years in Korea. Marcos Gomez, president of Bayer Korea, held up the front page of British newspaper The Financial Times with a picture of demonstrating workers with red headbands, and said the picture is likely the view of Korean workers that people around the world have. When strikers occupy roads, wield steel pipes in front of TV cameras and paralyze society, the causes these strikers may have had are simply lost.

A recent reform movement in Korea’s labor-management relations is progressing through the 1998 Korea Tripartite Commission with the emphasis on what is known as the Dutch model, under which labor is allowed to participate in management decisions. I am aware that some labor economists support the Dutch model if it is modified to the Korea’s economic environment, whatever the modification means, while others such as leaders of European businesses operating in Korea and the European Union Chamber of Commerce in Korea (EUCCK) oppose Korea’s adoption of the model.

I am not sophisticated enough to know whether or not the Dutch model, or a modified version, can work in Korea. All I know is that Korea’s policymakers, labor and business leaders should work from the view of a new paradigm based on an agreement that global competition will continue to force Korean businesses to relocate overseas for their survival and that soul-searching efforts need to be made to identify and promote the comparative advantages of Korean businesses and foreign businesses in Korea that can absorb redundant workers through retraining.

In general, European nations favor policies of cradle to grave employment that make it very difficult for businesses to lay off workers when falling profits make it necessary. These policies force businesses to be reluctant in hiring new employees unless they are really needed. This led to higher rates of unemployment in European nations than in the United States. When businesses lose flexibility, it hurts everyone, including workers.

To conclude, Korea’s labor unions need a new strategy. The strategy should be directed toward the long-term survival of unions rather than to securing short-term gains that jeopardize their survival. The simple fact is that everyone must abide by the law, including unions. The simple fact is that Korean wages can go up only if productivity increases. To the extent that investment is a critical determinant of increased productivity, unions have to work with management with a positive attitude to increase productivity. The simple fact is that large employers have a choice to outsource resources to cut costs and relocate operations overseas, while unions have no such choice. The simple fact is that labor unions cannot and should not dictate public policies such as privatization of public industries. The simple fact is that strikes, even legal ones, have to be a last resort, not a daily undertaking. The simple fact is that most workers in Korea do not belong to labor unions and their lives are just as important as union workers.

The simplest fact of all is that not only union leaders should understand these facts, but the government policymakers should also be made aware.

Meddling Fathers of LPGA Golfers
By Chang Se-moon
August 21, 2003

This year’s LPGA Tournament of Champions invites only the winners of LPGA tournaments during 2001, 2002, and 2003 as well as active LPGA Hall of Fame members. Since 1999, the Tournament of Champions has been held at the nationally known public course, Magnolia Grove in my adopted hometown of Mobile, Alabama. Pak Se-ri won the tournament during the past two years. At least five Korean players are invited to this year’s tournament scheduled for November 13-16 again at Mobile’s Magnolia Grove. This is one of two reasons why I enjoy following Korea’s LPGA players. The other reason is that I pretend to play golf also, although it all depends one’s definition of ``play.’’

I was so proud of Korea’s LPGA golfers that I wrote an article in this column on October 3, 2001 when the top three places were swept by Pak Se-ri, Grace Park and Kim Mi-hyun, with Gloria Park placing 20th. I characterized these women as Korea's wonderful LPGA ambassadors in my article. They all behaved like champions during the 2001 tournament.

Times have changed. These days, there are about 18 Korean or Korean-American golfers who play in LPGA-sanctioned tournaments. The exact number varies depending on how many amateurs are included in the count. For lack of a better word, I will call them Korean players because we all need to preserve our Korean heritage. To the extent that misgivings are committed by Korean-Americans, I apologize.

Lately, news about some Korean golfers has not been very good mainly because of the behavior of their fathers. Several newspaper articles and some programs on the Golf Channel conveyed problems that plague Korean golfers. Commentators on the Golf Channel made it clear that Korea’s top players have nothing to do with these problems.

Although the August 7, 2003 issue of the U.S. Korea Daily News reports that there have been many rumors circulating as to the bad behavior by fathers of some Korean golfers, the first sign of trouble for the general public surfaced when the promising Michelle Wie’s father complained to the media about a confrontation his daughter had with another player during this year’s LPGA U.S. Open. Problems with some Korean golfers, whatever they may be, became public information when Ron Sirak wrote an article about parental behavior of Korean golfers in Golf World magazine in August this year.

According to Sirak, LPGA tour officials called a special meeting during the Wendy's Championship for Children to discuss a series of accusations against some from the contingent of Korean players. Accusations included ``improper coaching by parents during competition, parents threatening caddies, and in one case, a father moving his daughter's ball out from behind a tree during a tournament.’’ LPGA commissioner Ty Votaw convened the unusual meeting ``to make sure they understand the rules and regulations of the LPGA and the rules of golf.’’ According to Sirak, one insider was more to the point about the subject of the meeting: ``It's cheating, pure and simple.’’

Sirak further states that ``multiple sources among players, caddies and agents told Golf World that some Korean fathers have acted as directional markers by standing where their daughters should aim, giving hand signals to indicate club selection and offering advice in Korean, all in defiance of the rules of golf which stipulate a player can only receive assistance from her caddie. The most serious allegations involved an errant shot at the BMO Financial Group Canadian Women's Open three weeks ago that allegedly was moved by one player's father.’’ The player involved in this ball-moving incident has not won on the LPGA tour.

It is important to repeat that according to the article, top-notch players such as Pak Se-ri, Han Hee-won and Grace Park are not involved with the accusations and have distanced themselves from their fathers. It is equally important to point out that the accusations involve more than one Korean player. Sirak states that of the 18 Korean players currently on the LPGA tour, ``the allegations are believed to involve fewer than 10 players,’’ suggesting several golfers are involved. Unfortunately, the LPGA meeting during the Wendy’s tournament was not the first one to discuss poor behavior by Korean golfers or their fathers. There was another one in May this year during the Michelob Light Open, which addressed issues such as Korean players making more of an effort to socialize during pro-am competitions.

I probably need to point out that the August 6 issue of USA Today reports a top LPGA rules official as saying ``she is unaware of violations alleged against some South Korean players as reported in Golf World magazine.’’

When golfers and their parents place themselves in suspicious positions during a tournament, there are several problems they may not be aware of. One problem is that Korean players will be watched more carefully, which may cause even innocent Korean players to feel nervous and play at less than their full potential. Another problem is that many successful golfers make money from advertising contracts. The accusations may cause all Korean women golfers to appear less attractive to promoters, possibly lowering their future earnings. Still another problem is that these accusations create or increase, whatever the case may be, a less than favorable image about Korea in general.

No matter how one looks at the problem, overzealous fathers of LPGA players who try to help their daughters by going against golf ethics let alone LPGA rules are bad Koreans and bad Korean-Americans. There is an honor and integrity to all sports, including LPGA golf. When the fathers of some Korean LPGA players behave in such way as to hurt the honor and integrity of the sport, they also hurt many people.

Women golfers who are assisted by their fathers will have a difficulty in making independent judgments when tougher times come. As anyone who plays golf knows, the golfers who play with these Korean golfers cannot concentrate and may lose their patience as Michelle Wie’s partner reportedly did during this year’s U.S. Open. Even the greatest, Tiger Woods, messed up a tee shot when a camera flash when off while he was swinging. Golf lovers who watch the sport on TV will look for the fathers when Korean players are about to hit or putt rather than enjoy the game. It is just a shame.

I don’t see any easy solutions to the problem until and unless a Korean golfer is disqualified. Hopefully, the fathers of some Korean women golfers will wake up before we reach this sad stage.

Let me tell you a story that Lee Deok-kyo, who worked at Oak Ridge National Laboratory and is a special senior scientist at the Korea Basic Science Institute, shared with members of the Overseas Korean Senior Professionals Network. It all happened during 1923. The president of the largest steel company was Charles Schwab, who died a pauper. The president of the largest gas company was Edward Hopson who went insane. The president of the New York Stock Exchange was Richard Whitney, who was released from prison so he could die at home. The greatest wheat speculator was Arthur Cooper, who died abroad penniless. The president of the Bank of International Settlements, whom Lee did not identify, shot himself. However, the 1923 winner of the U.S. Open and the PGA Championships was Gene Sarazan, who played golf until he was 92, died at the age of 95 and was financially secure at the time of his death.

Mr. Lee advises us to stop worrying about all the crap and just enjoy playing golf for yourself. Lee did not say whether all the crap included misguided efforts by Korean fathers to help their daughters during LPGA competitions but I like to think that he did. [schang@jaguar1.usouthal.edu]


KAEA Economic Conference
By Chang Se-moon
August 7, 2003

The Korea Development Institute (KDI) is Korea’s leading research organization, while the Korea-America Economic Association (KAEA) is the leading association of economists who were born in Korea but work in the United States. Last month, KDI and KAEA held a joint economic conference on policy matters at KDI’s Chongnyangni facility. I was fortunate enough to be on the program and sat through the entire conference. I would like to share selected proposals of public interest that were made during the conference.

One of the key issues discussed during the conference relates to management of public pension funds in Korea. Two papers were presented on the topic: one by Kang Moon-soo of KDI and the other by Shin Hung-sik of Frostburg State University in the U.S.

Kang reminded the audience that Korea’s population is aging rapidly. In many developed economies, it took more than 40 years for the portion of elderly people (aged 65-years and over) to increase from 7 percent to 14 percent of the total population. In Korea, it took only 22 years for the portion to increase from 7 percent to 14 percent by 2000. The aging process is expected to accelerate after 2030 and by 2050 the portion of elderly people will reach almost 25 percent of the population, which is comparable to that in advanced economies these days. Consequently, the number of elderly people per 100 working-age persons in Korea will rise from 10 in 2000 to 30 in 2030 and 45 in 2050. Korea’s National Pension Scheme, which provides coverage to workers in firms with 10 or more employees, was adopted in 1988. The compulsory coverage was expanded to include firms with five or more employees in 1992.

Although there are four major public pension funds in Korea (National Pension Fund, Government Employees Pension Fund, Teachers’ Pension Fund & Military Pension Fund), the majority of their assets are managed under the National Pension Fund. In 2002, the National Pension Fund had accumulated assets totaling 92.8 trillion won or about 15.6 percent of Korea’s GDP.

Two problems were cited by Kang. One is that the fund’s average return on investment was 12.15% over the period between 1988 to 2000, which was below the average market rate of return of 14.63% measured by returns from three-year maturity corporate bonds. The other is the fund’s financial vulnerability with projected deficits by as early as 2036 and the depletion of funds by 2047 even if many positive actions were taken in 1998 by the National Pension Reform Committee. The Committee lowered the average income replacement rate from 70 percent to 60 percent, raised the minimum qualifying age from 60 to 65 over time, and required a periodic readjustment of the current 9 percent contribution rate.

Kang suggested an increase in overseas investments for greater diversification, an investment in such riskier funds as unlisted stocks, private equity and real estate for greater returns, and a combination of higher contributions and lower benefit payments. In addition, Shin Hung-sik of Frostburg State University suggested the National Pension Fund adopt the new accounting standards for social insurance practiced in the U.S. in order to enhance public trust in the fund’s long-term sustainability.

Pension, Education, China, Income Gap

The second key issue addressed during the conference relates to higher education. Kim Sun-woong of the University of Wisconsin in Milwaukee and Lee Ju-ho of the KDI School of Public Policy and Management explored market competition for Korea’s higher education. According to Kim and Lee, the number of students enrolled in higher education institutions in Korea was only about 100,000 in 1960. The enrollment increased to more than 3.5 million in 2002. In April 2002, there were 159 two-year technical colleges of which 143 were private, 163 four-year colleges and universities of which 137 were private, 11 four-year national teachers’ universities, and 19 four-year technical universities of which 11 were private. Korea's higher education is predominantly private. Most public universities are national universities that are directly governed by the Ministry of Education and Human Resources Development.

Kim and Lee made an interesting proposal that ``there is no longer a compelling reason for supporting elite public universities,’’ since private institutions can provide quality education as competitively as public institutions. The authors claim the ability to attract quality students by public universities is largely due to their cheaper tuition, which in turn favors students from upper income families since these are the students who can afford private tutoring and thus have a greater probability of being admitted to these prestigious public universities.

The causal relation between tuition subsidies by the government and private tutoring was also explored by Yoo Yoon-ha of the KDI School of Public Policy. Yoo agrees with Kim and Lee in that tuition controls through governmental subsidy to national universities benefit not poor families but upper income families because a larger portion of students at these universities come from relatively rich families. Furthermore, the highly selective admission procedure induced by the tuition control and resulting competitive frenzy in Korea led to a proliferation of private tutoring that again benefited students from upper income families more than students from lower income families. Yoo states that private tutoring is a problem in many other countries including Japan, China, Sri Lanka, Malta, Egypt, Thailand, Mauritius, Hong Kong, Morocco, Tanzania, Zimbabwe and Taiwan.

Yoo considered two alternative approaches to admission standards: The quality standard in which students with higher test scores than a preset cut-off value be admitted, thus effectively raising the cut-off test scores, and the quota system in which students with higher class ranks be admitted. Yoo concedes that neither of the two approaches is satisfactory, suggesting the need for further research.

Another key issue discussed during the conference relates to China. Kim Joon-kyung of KDI and Chung H. Lee of the University of Hawaii at Manoa state that by the end of 1999, Korea had invested $4.3 billion in China where it had virtually no investment before the late 1970s. According to Kim and Lee, no single motive drives Korea’s investment in China: Some firms have invested in China to take advantage of its cheap labor, while others have invested in China for market access or to secure its natural resources. The authors conclude that Korea’s investment in China will continue to have a positive effect on the economic integration of the two countries by promoting information and personnel exchanges between the two countries and by inducing China to respect contracts, property rights and the rule of law.

My own presentation on China during the conference demonstrates that the amount of Korea’s exports to the U.S. that are adversely affected by the China’s emerging global power appears significant, while Korea does not appear to have lost its competitive edge so far as its exports to China are concerned. My conclusions are that whether or not global China is more a blessing than a curse may well depend on how well Korea prepares for future competition from China, and that it is important to continue reforming Korea’s economy and develop a new China strategy based on identification and promotion of comparative advantages.

Finally, Choi Kyung-soo of KDI addressed the issue of Korea’s income distribution. According to Choi, income distribution in Korea became more unbalanced after the 1997 financial crisis and the current income inequality in Korea is almost at the level of the early 1980s. Choi concludes that the post-1997 rise of inequality has impacted mainly the least educated group whose reduced earnings are attributed more to fewer working hours than to lower wages.

Sensible Solution to Kim Un-yong vs. Pyeongchang
By Chang Se-moon
July 30, 2003

The investigation by Korea's National Assembly into the dubious role Kim Un-yong may have played in PyeongChang's bid to host the 2010 Winter Olympics, and the Assembly's recent resolution recommending Kim resign from the National Assembly, appears to miss some basic issues.

Let us go back to the 2002 Winter Olympics held in Salt Lake City. The shady role that Kim Un-yong played in illegal lobbying by his son, Kim Jeong-hoon, prior to the 2002 Winter Olympics was widely publicized, prompting United States authorities to investigate Kim Jeong-hoon. When the younger Kim fled the U.S. to visit Bulgaria, he was arrested and imprisoned by Interpol agents in May this year. A civilized nation would have replaced the elder Kim in 2002 as the nation's representative on the International Olympic Committee to proclaim the nation's integrity to the sporting world if nothing else. Korea didn't.

The feeling of shame and anger in Korea against the elder Kim regarding the shady role that he played before Salt lake City was chosen as the site for the 2002 Winter Olympics was notably absent, probably because the elder Kim made significant contributions to Korea's stature in the sports world. For instance, he attracted the 1988 Summer Olympics to Seoul and was able to get taekwondo added as an Olympic event.

Now Korea is angry at Kim Un-yong with his accusers claiming that he worked against PyeongChang's bid to host the 2010 Winter Olympics by suggesting to some IOC members that they don't vote for PyeongChang. This is according to Kong Ro-myoung who chaired the committee for PyeongChang's bid. The number of accusers has ballooned and now includes key members of the committee such as Kim Jin-sun who is the governor of Kangwon Province and Rep. Kim Yong-hak who chairs the Special Committee for the PyeongChang Winter Olympics. To make matters worse, major newspapers in Korea ran editorials demanding the truth from Kim even though he steadfastly claimed his innocence, suggesting that the verdict is already in: Kim is guilty.

I think the incident has been blown out of proportion mainly because of the narrow-minded view of some Koreans. Let me illustrate with my own experience. I chair my college's tenure committee that grants professors permanent job security, and promotions committee. I am also a professor at the department of economics. When an economics professor is recommended for promotion and tenure by the department faculty, I do not feel an obligation to give blind support to the candidate, nor do I support the candidate without a further review at the college committee level. There is a good reason for this approach. As chair of the college committee, I have a broader view and more information than the department faculty. For instance, unlike the department faculty who can compare the professor's qualifications with those of other faculty, as chair of the committee I can compare the professor's qualifications with other faculty.

Assuming Kim Un-yong did not exert his greatest support for PyeongChang's bid as claimed by his accusers, I see nothing wrong with his lukewarm support for PyeongChang's bid. Kim has a two-fold obligation: One is to represent Korea's interests and the other is to represent the IOC's interests. Kim did an excellent job in attracting the 1998 Summer Olympics to Korea and getting taekwondo included as an Olympic sport. Kim also has an obligation to compare all alternatives as host venues of the 2010 Winter Olympics such as Vancouver, Canada and Salzburg, Austria aside from PyeongChang. The American network NBC, which will broadcast the 2010 Winter Olympics, wanted Vancouver all along because the selection of PyeongChang meant tape-delayed broadcasts for many of the events. If Kim believed that Vancouver was better prepared for the 2010 Olympics, he had an obligation to support Vancouver. Keep in mind that not many, if any, of PyeongChang's committee members visited all three sites to compare and make an objective judgment.

I do not see much merit in the argument by Kim's accusers that his intention to run for IOC vice president, which he won after PyeongChang's fate was determined, spoiled PyeongChang's bid to host the 2010 Winter Olympics. I also did not see any merit in TV news reports that criticized Kim Un-yong because he praised the performance of Korean athletes, ignoring the disqualification of a Korean skater during the 2002 Winter Olympics in Salt Lake City. Kim did not ignore the disqualification issue. Kim simply made an overall evaluation of Korea's performance as any mature person would have done. When judging is made by personal evaluations, some people will always be unhappy. One sign of a civilized nation is to learn to accept the opinions of others when they differ from their own no matter how unfair these opinions may seem at times.

Let us wake up and broaden our views. If Korea wants to remove Kim from the IOC, remove him for his shady role involving his son played during the selection process of Salt Lake City as the host of the 2002 Winter Olympics. If not, do not criticize him for the alleged lack of support for PyeongChang's bid that may not be true, and is well within his rights and duties even if it is true. Also, do not forget all the contributions he has made to Korean sports through his work at the IOC. When I read that about 4,000 people came all the way from Kangwon Province to stage a protest rally against Kim at Youido, my response was how could there be so many people who had nothing better to do.

When 250 or so Koreans showed up in Prague to lend support for PyeongChang's bid, I am not sure whether it would have affected the outcome favorably or unfavorably. If I were a voting member surrounded by a 250 partisan crowd pressuring me, I know how I would have voted.

My assessment is that Korean sports have done excellently in global competition through the hosting of the 1988 Olympics, 2002 World Cup, and many other world events held in Korea. My view is that PyeongChang did not fail in its bid to host the 2010 Winter Olympics; PyeongChang succeeded in making itself known to the world community and should be proud of itself. Prolonging the controversy through public rallies and investigations will only hurt Korea's future applications whether these applications come from PyeongChang or Muju.

Now is the time for all of us to think about how the accusations, investigations and further actions on the issue will affect the future of Korean sports on the global stage. Enough damage to Korea's future efforts to attract Olympic events has already been done.

The most sensible solution to Kim v. PyeongChang may well be that all parties stop the accusations and further investigations beyond the latest resolution, that the bidding committee forget about taking Kim to the National Assembly's ethics committee, that Kim forget about taking legal action against anyone or any group, that everyone in Korea congratulate PyeongChang officials for a successful promotion of their city, that the National Assembly compliment the IOC for the good work it has done, and that we all move on. Between antagonists there can be no winner unless there is also a loser. When there is a community of interest, everybody can win. I don't see why everyone in Korea cannot win over this issue. [schang@jaguar1.usouthal.edu]

South Korea Needs New China Strategy
By Chang Se-moon
07/07/03

Early this year, an American visitor to China was given a list of movies that were still running but not on video yet in the United States: ``Chicago,’’ ``Catch Me If You Can,’’ ``Gods and Generals,’’ ``Dare Devil,’’ ``Lord of the Rings - The Two Towers,’’ ``Harry Potter and The Chamber of Secrets,’’ ``Final Destination II,’’ ``Jungle Book II’’ and ``How to Lose a Guy in Ten Days.’’

The American visitor found all these movies on video available for purchase in China. Although this is a story indicating the continuing difficulties in enforcing intellectual property rights (IPR) in China, China has made significant progress in opening its market since its accession to the World Trade Organization (WTO) in December 2001.

Korea is expected to experience major competition on the Chinese market with the rest of the world during the next several years. This is because Korea has maintained normal economic relations with China since 1992 while the rest of the world just gained open access to the market only after China’s accession to the WTO.

The process of lowering tariffs and removing import barriers in China has been in place for less than two years and will continue through 2010 although many of the removals will be completed by 2005.

Within the first six months of China’s WTO membership, China reportedly amended more than 2,300 laws and regulations and abolished 830 more to comply with WTO requirements.

To determine whether there has been any particular trend in exports to China from Korea and the rest of the world, I reviewed trade data from 1992 to 2001 on Korea’s exports to China and the world’s exports to China as collected by the United Nations Department of Economic and Social Affairs, Statistics Division.

There are 94 product groups classified based on the Standard Industrial Trade Classification (SITC). Note that this review was not affected by China’s accession to the WTO. Simply not enough time has passed to explore the impact of China’s accession to the WTO on Korean exports to China in comparison with the rest of the world’s exports to China.

My review indicates that only two product groups of Korean exports to China declined while the world exports of the same items increased sharply during the ten-year period: SITC 02 _ dairy products and bird eggs, and SITC 32 _ coal, coke and briquettes.

For SITC 02 _ dairy products and bird eggs, the amount of Korean exports to China was small at $60,287 in 1992 (0.0 percent of Korea’s exports to China in 1992) and $37,274 in 2001 (0.0 percent of Korea’s exports to China in 2001).

For SITC 32 _ coal, coke and briquettes, the amount of Korean exports to China was $63.82 million in 1992 (2.4 percent of Korea’s exports to China in 1992) and $631 in 2001 (0.0 percent of Korea’s exports to China in 2001).

My review also indicates that four product groups of Korean exports to China in comparison with global exports to China decreased since 1997: SITC 21 _ hides, skins and furs; SITC 56 _ fertilizer; SITC 84 _ clothing and accessories; and SITC 87 _ scientific equipment.

It should be pointed out that the decrease may not have been caused by the production of substitutes in China at least for SITC 21, 84 and 87 because the amount of world exports to China for these three items has increased through 2001.

It may indicate a loss of comparative advantages to Korea’s exporters of the three product groups. In the case of SITC 56, both Korean and global exports to China fell during the study period, indicating increased fertilizer production in China.

It is widely believed that China’s share of world export markets for apparel and textiles as well as electronics and other manufactured products is projected to rise dramatically due to its acceptance into the WTO. It is less known, however, that China’s textile imports are also projected to increase due to an expansion of China’s apparel sector.

For SITC 21 _ hides, skins and furs _ the amount of Korean exports to China was $1.93 million in 1992 (0.1 percent of Korea’s exports to China in 1992) and $4.60 million in 2001 (0.0 percent of Korea’s exports to China in 2001). For SITC 56 _ fertilizer _ the amount of Korean exports to China was $1.89 million in 1992 (0.1 percent of Korea’s exports to China in 1992) and $1.82 million in 2001 (0.1 percent of Korea’s exports to China in 2001)

For SITC 84 _ clothing and accessories _ the amount of Korean exports to China was $10 million in 1992 (0.4 percent of Korea’s exports to China in 1992) and $74.41 million in 2001 (0.3 percent of Korea’s exports to China in 2001). For SITC 87 _ scientific equipment _ the amount of Korea’s exports to China was $5.68 million in 1992 (0.2 percent of Korea’s exports to China in 1992) and $312.35 million in 2001 (1.3 percent of Korea’s exports to China in 2001).

Overall, the amount of the six SITC export groups from Korea to China identified as having been affected either directly or indirectly by global competition represents no more than 3.2 percent of Korea’s exports to China ($2.62 billion) in 1992 and 1.6 percent of Korea’s exports to China ($23.38 billion) in 2001. It appears that at least during the study period, Korea has not lost its competitive edge so far as its exports to China are concerned.

Probably because of the advanced state of the Korean economy in relation to other countries that also export to the Chinese market, and also because China’s economy is still in its early stages of development, Korean exports to China in competition with other countries’ exports to China have not been disadvantaged much for the study period, 1992 to 2001.

Whether this success in the short run will continue in the long run remains to be seen, since the world has had less than two years so far to increase their exports to China from lowered trade barriers.

Looking to the future, it has been argued that China’s reduction of tariffs and non-tariff trade barriers following its WTO entry will boost Korea’s exports to China and thus its trade surplus from China at least in the near future.

In the long run, however, increased competition is expected in both Chinese and third-world markets and Chinese companies will become fierce competitors.

Furthermore, Korea has to compete with other countries in the Chinese market. Companies from various countries will set up their production bases in China, capturing both the cheap labor costs and more importantly, the huge domestic market. Therefore, Korea is going to have to compete with the best companies from all over the world.

There is also the threat from fast-learning Chinese companies. These Chinese companies will compete with their Korean counterparts in the Chinese market as well as in third-world markets.

Korea’s higher cost structure when compared to China can only be justified if Korea can produce more efficiently. It is important to develop a new strategy toward China through intensive research on identification and promotion of Korea’s comparative advantages over China.

Interestingly, when China launched its ambitious modernization program around 1980, the Chinese leadership headed by Deng Xiaoping was quick to adopt an export-oriented growth model, which has dominated China’s economic development since then.

Some Chinese scholars have indicated that China may be shifting away from an export-oriented growth model toward a trade deficit-based, internal demand-driven growth model.

This shift away from the export-oriented strategy, according to these scholars, is consistent with the essence of the export-oriented strategy, which is to build capital stock and wealth by serving overseas markets first, and then serving domestic markets after income has risen far enough to become self-sustaining.

If this view were correct, a further developed China with greater market openness would become an increasingly powerful growth engine in the region, providing greater opportunities, as well as, competition for Korean businesses.

No matter how one looks at the Chinese market, developing a visionary China policy merits a high priority from Korea’s policymakers.

The writer is an economics professor of the University of South Alabama and a member of The Korea Times Economic Editorial Board. His e-mail address is schang@jaguar1.usouthal.edu.--E.D.

China’s Accession to WTO

By Chang Se-moon
June 19, 2003

Most important among the many global events that have unfolded in recent years to affect Korea’s status as a major exporter is the globalization of China’s economy. China’s economic policy has undergone a radical transformation since Deng Xiaoping and his allies took control of the government in 1978. The transformation included the use of market mechanisms, flexible prices and private incentives over a wide range of economic decision-making. As Deng’s economic reforms were implemented, the annual increase in real GDP averaged 9.5% during the 1980s, the highest average annual increase for any country during the decade. This phenomenal rate of growth continued through the 1990s, ranging between a high of 14.2% in 1992 and low 8.8% in 1997.

China’s accession to the World Trade Organization (WTO) began with a formal petition to join the General Agreement on Tariffs & Trade (GATT) in July 1986 from the Chinese government. This was accompanied by a list of the nation’s laws, regulations and policies that affected trade and foreign investment which the government proposed to change to satisfy WTO requirements. The GATT general council appointed a working party in March of 1987 to examine China’s application and negotiate the terms for China’s accession. Following the formation of the WTO on January 1, 1995, replacing GATT, a successor WTO working party took over the negotiations with each interested WTO member negotiating bilaterally with China regarding market access concessions and commitments in the goods and services areas.

The most liberalizing concessions and commitments obtained through these bilateral negotiations were consolidated into China’s goods and services schedules for application to all WTO members. Overlapping in timing with these bilateral negotiations, China engaged in multilateral negotiations with the working party members on the rules that would govern trade with China. These commitments are set forth in China’s Protocol of Accession and an accompanying Report of the Working Party. China’s admission was unanimously approved on November 10, 2001, at the WTO Ministerial Conference in Doha, Qatar. China became the 143rd member of the WTO on December 11, 2001. Even the downing of a United States spy plane in April 2001 by the Chinese military did not derail these negotiations. Both President Bush and Premier Jiang Zemin agreed to exempt all trade activities and agreements from any ensuing diplomatic measures.

What did China receive from its accession to WTO? As a result of China’s WTO accession, the country now enjoys ‘’most favored nation (MFN)’’ status from all members of the WTO. MFN means each country will impose the lowest tariffs on goods imported from its ‘’most favored’’ trading partners to identical items imported from all WTO members. This commitment to MFN status results in tariffs being reduced to their lowest levels among WTO countries. Membership also required each nation to extend ‘’national treatment’’ to all imports. For example, the same percent excise or value added tax is imposed on both imported and domestically produced goods. Standing alone, the impact of MFN status for China in the U.S. may not be significant since the U.S. had granted MFN status to imports from China in 1980 and it was renewed annually until it was made permanent when China became a member of the WTO.

China also benefited from its accession to the WTO when several of China’s trading partners lifted most of their quantitative restrictions on a range of imports. Quotas on textiles and clothing are phased out in accordance with the Agreement on Textiles and Clothing, while other quotas are phased out in accordance with negotiated schedules. China can now turn to the WTO to settle trade disputes and participate in multilateral negotiations on trade rules and future trade liberalization.

Low Tariff Rate

What did China commit for its accession to WTO? This is of special interest to Korean exporters to China. In agriculture, China pledged to reduce all tariffs from an average 31.5 percent to 17.4 percent. It will eliminate export subsidies and rapidly increase the volumes of tariff-rate quotas (TRQ) on most imports. Under the TRQ system, a set quantity of imports is allowed at a low tariff rate, while imports above that level are subject to a higher rate. Within-quota tariff rates will be minimal (1-3 percent), while above-quota tariffs for sensitive products (mostly grain) will be reduced from 80 percent to 65 percent, a level comparable to those in the European Union and some Northeast Asian economies. For industrial products, China has pledged to phase out quantitative restrictions, cut the average tariff from 24.6 percent to 9.4 percent by 2005. To China’s credit, China implemented the required tariff changes on agricultural and industrial goods for 2002 on January 1, 2002.

The most far-reaching opening may take place in the services sector, which had largely been closed to competition. The restrictions facing foreign services providers in the areas of licensing, equity participation, geographic location, business scope and operations will be relaxed or removed over time. China has promised to open its telecommunications, financial services, distribution, and many other industries to foreign services providers.

Besides market access, China has made other commitments that will increase the transparency of its trade and investment regimes. It has pledged to apply its trade policy uniformly across the country and to enforce only those laws, regulations and other measures that have been published beforehand. China has also agreed to eliminate, mostly by 2005 but no later than 2010, all prohibited subsidies including those to state-owned enterprises, liberalize trading rights and require state trading companies to conduct their operations in a commercial manner. China's Ministry of Foreign Trade and Economic Cooperation announced in May 2002 that more than 2,300 laws and regulations had been amended to comply with WTO rules and 830 abolished since the country joined the WTO in December 2001.

One of the more significant highlights among industrial tariffs was China’s agreement to participate in the Information Technology Agreement (ITA), which requires the elimination of tariffs on computers, semiconductors and other information technology products. China agreed to complete its elimination of these tariffs by January 1, 2005. One problem arose in 2002 from China’s treatment of 15 ITA tariff lines, covering certain semiconductor and telecommunication equipment components. China conditioned the reduced or zero tariffs for these tariff lines to the importer’s completion of an end-user certificate, to be approved by the Ministry of Information Industry (MII), guaranteeing that products imported will be used as components in the production of finished information technology products in China. The use of this condition is not authorized by the goods schedule negotiated as part of China’s accession to the WTO.

In its accession agreement, China also agreed to eliminate numerous non-tariff measures (NTMs), which include quotas, licenses and import tender requirements covering hundreds of products such as machinery and electronic products. Most of these NTMs, including for example, the NTMs covering chemicals, agriculture equipment, medical and scientific equipment and civil aircraft, had to be eliminated by the time China acceded to the WTO. China was allowed to phase out other NTMs, listed in an annex to the accession agreement, over a transition period ending on January 1, 2005.

Probably because the diplomatic and economic relations between China and Korea were normalized on August 24, 1992, and a trade agreement between the governments of China and Korea was signed on September 30, 1992, the effect of China’s accession to the WTO on Korea has not been as dramatic as it could have been. Nonetheless, changes have been rapid as indicated in the announcement by Incheon International Airport on August 25, 2002, that China surpassed Japan as the destination with the most flights from Korea during the peak summer season. One interesting question relates to whether global China will cause Korea’s exports of certain products to be squeezed out from the U.S. and Chinese markets. We will explore the answer later in this column. Readers who cannot wait may contact the Korea Development Institute since my presentation on China to KDI is scheduled for July 11 (Friday).

Comfort Women and Forced Labor

by Chang Se-moon
June 6, 2003

MOBILE, Alabama _ No less than 724,727 Korean workers were taken to mainland Japan, Sakhalin and southern Pacific islands as forced labor during World War II.

In addition, more than 200,000 women, mostly Korean, but also Chinese and Filipino, were forced into sexual slavery for Japanese troops as ``comfort women.’’

Numerous civil lawsuits have been filed by these Korean victims of World War II against Japan and Japanese businesses since 1972, requesting compensation for forced labor without pay and reparation for pain and suffering by the former comfort women. So far, not a single case is believed to have been won by any of these victims.

There are some cases in which lawsuits were settled without reaching a trial. In July 2000, Nachi-Fujikoshi Corp. in Toyama, Japan, reached a settlement in a lawsuit filed by two women, Lee Jong-suk and Choi Bong-nyon, and one man, Ko Dok-jwan of Korea in September 1992 in Japan.

This was the third settlement made, but the first to be settled at the Japanese Supreme Court. The company did not offer any apology. Some 60 lawsuits seeking payment for forced labor during the war are believed pending throughout Japan.

For cases filed in Korea and Japan, there is a wildcard in that the 1965 Korea-Japan Agreement that led to the resumption of diplomatic relations between the two countries did not make clear the rights of individual Korean victims to litigate.

Claims against Japan by individual victims of Korea are subject to different interpretation. Although a part of the Agreement approved by the National Assembly of Korea appears to ensure Korea’s rights to claims against Japan, Korea did not benefit from the reparations clause in Article #14 of the 1951 Treaty, which spelled out the rights of the Allied Powers against Japan. This is because Korea was not able to dictate the terms of reparations against Japan because Korea was not treated as a member of the Allied Powers. Instead, Korea’s claims are stipulated in the Treaty to be subject to separate negotiations with Japan that led to the 1965 Agreement.

According to Lee Won-duk of the Sejong Institute, there were two issues in the claims against Japan by Korea during negotiations that led to the 1965 Agreement: the basis for a claim and the amount of a claim. The policy of Japanese leaders was to accommodate the amount of claims without admitting any guilt. Thus Japanese war-related payments to Korea were known as economic assistance, not war reparations.

Recent claims by Korean victims of the Japanese occupation relate directly to Article #2-(1) of the 1965 Japan-Korea Agreement, which states in part that all claims between the two countries, including the requirements of Article #4-(a) of the 1951 Treaty of Peace, are completely settled. Japan has relied on Article #2-(1) of the Japan-Korea Agreement to reject any and all claims against Japan, including claims by the former comfort women.

Unlike the Japanese government, Lee asserts that Article #2-(1) of the Japan-Korea Agreement only covered claims between the two governments, not claims from individual victims. Lee further explains that Japan’s payment to Korea should have been based on its illegal occupation of Korea rather than on claims against lost property.

Payments that arise from Japan’s illegal occupation of Korea would be much broader than the narrow claims against lost property, and would include pain and suffering by forced labor and comfort women.

Note that Lee’s argument, no matter how valid it may be, is an interpretation of Article #2-(1) of the Japan-Korea Agreement that did not explicitly spell out the rights of Korea’s individual victims.

This is because the Agreement was a political compromise between the two governments in the 1960s rather than a document settling disputes and claims that arose from Japan’s illegal occupation of Korea.

The hypothesis that the 1965 Japan-Korea Agreement was a settlement poised to please domestic constituents rather than a settlement of reparations for the Japanese occupation is also evidenced by the amount of the payment stipulated in the Agreement.

The actual amount of payment by Japan to Korea was based on the November 12, 1962 memorandum, known as the Kim (Jong-pil)-Ohira memo, which stipulated $300 million payment to the Korean government, $200 million loan to the Korean government at 3.5 percent annual rate of interest for 20 years after a seven-year no-interest period and $100 million loan to the private sector in Korea.

The Park Chung-hee administration is believed to have stipulated that the amount of claims should be at least $500 million, leading us back to Lee’s proposition that Japanese leaders tried successfully to accommodate the amount of claims without admitting guilt, making it difficult for Korea’s victims to file claims against Japan as individuals.

It has been reported that Park expressed his determination to complete the Agreement even if he were to become the second Lee Wan-yong, who is known as a traitor in Korea by being instrumental in Japan’s occupation of Korea.

My opinion is that the whole issue of reparations from the Japanese occupation is entangled in the Japanese unwillingness to admit guilt for their illegal occupation of Korea, former President Park Jung-hee’s approach toward the 1985 Agreement from political expediency with no understanding of the future impact of what now appears to have been hasty, if not a selfish on Park’s behalf, and a recognition of the weak position the Korean government was in.

Today, there are essentially two options for the Korean government that are not necessarily mutually exclusive. First, the Korean government could admit that Korea made a mistake in negotiating the 1965 Japan-Korea Agreement and unilaterally establish a compensation fund for those survivors who suffered as forced laborer or as comfort women. Note that former Allied nations such as Canada, Great Britain, Australia and New Zealand have decided in recent years to compensate their veterans who were POWs under the Japanese military. There is also a similar effort being made in the U.S. Congress.

The other option is to work with conscientious Japanese leaders toward establishing a foundation similar in nature to the German Slave Labor Foundation for the former Nazi slave-labor victims.

The German government and private companies in Germany contribute to the fund. In fact, a group of human rights lawyers, scholars and activists in Japan has proposed to establish a foundation similar to the German foundation to be preceded by a sincere apology by the Japanese government to all wartime victims.

Note also that on March 21, 2001, three opposition parties in Japan (the Democratic Party, the Communist Party and the Social Democratic Party) introduced a bill seeking government compensation for comfort women in the House of Councilors. Further, the Asahi Shimbun, one of the most respected daily newspapers in Japan, also proposed in the past that Japan should work toward new legislation and the establishment of funds that specify corporate responsibility.

Japan is under a significant pressure from the international community to resolve these issues, as evidenced by the Final Judgment of the Women’s International War Crimes Tribunal of Japan’s Military Sexual Slavery.

The Final Judgment was submitted to the Tokyo Tribunal in Hague, Netherlands on December 4, 2001, more than 55 years after the Japanese Imperial Army sexually enslaved no less than 200,000 women from nine countries such as China, The Philippines, North and South Korea, Taiwan, Japan, Indonesia, Malaysia and the Netherlands between 1932 and 1945. The Final Judgment was for Japan to recognize its responsibility and provide full reparations to the victims and survivors.

I would like to remind readers that the rights of the European victims prevailed and eventually led to $5.2 billion settlements from Germany; that last year the Japanese Asian Women's Fund paid Dutch comfort women for being forced into sexual slavery in Indonesia during the war; and that even in Japan there was a ruling, although reversed on appeal, ordering Japan to pay compensations to comfort women. Readers may also recall that Japan was totally outraged over the alleged rape of one Okinawa woman by a U.S. soldier.

Not too many former comfort women and forced laborers are alive today, and even they will eventually pass away soon. Isn’t it about time to close the sad chapter in the relationship between Korea and Japan by making a formal apology and appropriate compensation to the few survivors?

View on Korea’s Declining Birthrate

By Chang Se-moon
May 23, 2003

Recent reports from the government indicate that the birth rate was 4.53 in 1970 but steadily declined to 2.83 in 1980, 1.59 in 1990, 1.47 in 2000, and finally to 1.17 in 2001, which is the lowest among the 30 member countries of the Organization for Economic Cooperation and Development. If the trend continues, Korea’s population is projected to peak at 50,680,000 in 2023, and start declining to 44,340,000 in 2050, to 32,520,000 in 2075, and to 23,100,000 in 2100. Since long-term projections are risky, let us limit ourselves to the unmistakable trend of Korea’s declining birthrate that will eventually lead to a declining total population.

The key question relates to whether the low birthrate is a problem. The prevailing official as well as unofficial view appears to be that yes, it is a problem. In recent weeks, for instance, Korea’s Minister of Health and Welfare Kim Hwa-joong is reported to have stated that Korea's birthrate is now the world’s lowest, and the drop could pose problems for pensions, education and defense spending. In her report to President Roh Moo-hyun, Minister Kim said the ministry would develop and pursue an active program to encourage more births. The ministry is considering benefits such as delivery and childcare subsidies, tax reduction, and lower education costs.

Concerns over the declining birthrate were taken so seriously that the City of Kwangju reportedly began a pageant for women who had many children. During this year’s contest, Lee Jae-im, who had given birth to seven daughters and one son by the age of 35 was selected as the ``Fertility Queen.’’ The first place prize was a three-day trip to Cheju Island, not too far from Kwangju. A total of 88 families participated in the Fertility Queen competition, with two families having had eight children, two families with seven children, and three families with six children.

I have a different view of Korea’s low birthrate. Importantly, there is no correlation between the level of economic welfare measured in per capita GDP and population size or density. According to the United Nations’ Department of Economic and Social Affairs, the ten countries with the highest per capita GDP in 2000 were: Bermuda ($44,060), Luxembourg ($43,372), Japan ($37,494), Norway ($36,198), United States ($34,637), Switzerland ($33,394), Liechtenstein ($33,394), Iceland ($30,681), Denmark ($30,141), and Qatar ($29,100). Korea’s per capita GDP that year was $9,782, while the North Korea’s was $540.

The ten countries with the largest population during the same year were: China (1,273,111,290), India (1,029,991,145), United States (278,058,881), Indonesia (228,437,870), Brazil (174,468,575), Russia (145,470,197), Pakistan (144,616,639), Bangladesh (131,269,860), Nigeria (126,635,626), and Japan (126,771,662). Only two of these ten countries had per capita GDP that belonged to the top ten _ the United States and Japan. Korea’s population that year was 47,904,370. Incidentally, the 11th most populous nation in the world during the year was Mexico (101,879,171) the per capita GDP of which is not even close to the top ten ranking.

Some may argue that it is not total population size, but how many people live within a given area. We thus take a look at the ten nations with the highest population density per square mile. The ten countries, with population density in the parentheses, are: Macao (55,960), Monaco (31,482), Singapore (17,202), Hong Kong (17,102), Gibraltar (11,017), Gaza Strip (8,476), Malta (3,234), Bermuda (2,797), Bahrain (2,696), and Maldives (2,683). Of these ten countries, only Bermuda had a per capita GDP that ranked in the top ten. Korea’s population density was 1,260.

The low birthrate is more a blessing than a curse. It indicates that Korean females are intelligent, smart, and confident. The low birthrate does create some problems in the short run, but the solution should be found not by increasing the birthrate but by making changes in current laws that can minimize the potential adverse impact of the low birthrate.

Many of the problems that may arise from the low birthrate can be solved by making changes to the nation’s retirement system. I think the long-term objective should be the elimination of the mandatory retirement age. It is silly to hold onto the same retirement age when the health of Korea’s older generation has improved rapidly in recent years. At least as an interim measure, Korea may consider adopting the wage peak system. I agree with Lee Joung-woo, director general for policy planning at Chong Wa Dae, who said ``Many people have retired at an early stage, in their late 40s or early 50s, which has resulted in the nationwide squandering of human resources with considerable work experience.’’

However, I feel uncomfortable arbitrarily picking an age such as 50 as the age with peak earnings because the peak-earning age will vary widely with individuals. One tentative option may be to keep the current retirement ages but allow workers to continue work at wages that are mutually agreeable to employees and the employer. This is essentially the system that Kyohak Company has implemented since the end of 2001, giving a 5 percent to 10 percent reduction in the salaries of its workers over the age of 58.

It is important to keep in mind that the wage peak system works only if the retirement contribution is made portable or proprietary. If the retirement pay is based on the average of salaries from the last few years as some organizations may practice, the wage peak system cannot work. It can work only if annual contributions made by employees and matched by employers belong to the employee regardless of how much the employee earns. This way, retirement benefits will continue to increase even if employees work at a lower wage beyond a certain age.

Finally, think about the positive impact of the low birthrate. The most important impact of the low birth rate will be on the way Koreans view human lives. Note that everything depends on supply and demand. The value of a human being depends also on supply and demand. When there are too many people in a small land area as is the case in Korea, the value of human lives falls and people tend to consider other human beings less precious. When the place is less crowded because of the declining birthrate and thus human beings become more precious, we will be less arrogant and nicer to those who are poor; we will not look down on people who work at 3-D occupations; we are less likely to accept bribery as a way of life; we will not live as if the objective of our life style is to show off to friends and relatives; and so on. One good economic reason why a low birthrate is good for Korea is that a low birthrate may lower the total GDP but will raise the GDP per person, making Korea’s future generations wealthier, healthier, gentler to one another, and happier.

Real Fabric of US-Korea Economic Relations

By Chang Se-moon
May 13, 2003

MOBILE, Ala. _ Economic relations between South Korea and the United States run deeper even than the increasing amount of trade between the two nations. The foundation of the economic ties between the two countries is the continuing interactions among Koreans, Americans and Korean-Americans.

The Korea-U.S. Economic Council (KUSEC), a private non-profit organization, was chartered in 1973 for promotion of economic cooperation between Korea and the U.S.

Under the umbrella of the KUSEC, four economic cooperation committees were organized between Korea and groupings of U.S. states, and eleven economic cooperation committees were organized between Korea and eleven states that are not part of the four multi-state committees.

The Korea-Southeast U.S. Economic Committee with seven U.S. states is perhaps the most active among all and has Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia as its member states. The Korea-Pacific U.S. Economic Committee enjoys a geographic proximity as well as a large Korean-American population in Alaska, California, Hawaii, Oregon and Washington. The Korea-Midsouth U.S. Economic Committee, with Arkansas, Louisiana, Mississippi and Oklahoma as its members, and the Korea-New England U.S. Economic Committee, including Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, are the other two regional groupings. The eleven states that have individual economic committee relations with South Korea are Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Missouri, Nevada, Texas, Utah and Wisconsin. The interaction between South Korea and these 32 U.S. states continues throughout the year either through organized annual conferences, individual contacts or both.

Separately, there are two chambers of commerce that ordinary citizens in both countries may not be familiar with. The Korean Chamber of Commerce in America, known as KOCHAM and located in New York, represents Korean businesses operating in the U.S., while the American Chamber of Commerce in Korea, better known as AMCHAM, was founded in 1953 with a broad mandate to encourage the development of trade and commerce between the two countries. The AMCHAM’s membership has grown to over 2,300 members and includes more than 1,000 member companies. The names of new members included in its latest annual directory include IBM Business Consulting Services, Boeing Company, Pizza Hut Korea, Honeywell Electronic Materials Korea, Yahoo! Korea Corp., and a number of Korean businesses and public agencies.

The number of Korean businesses operating in the U.S. is too numerous to count. Everybody knows there are hundreds of branches of Korean businesses in New York and Los Angeles. But not too many people know that there are many branches of Korean businesses _ not businesses owned by Korean-Americans _ outside large cities such as New York and Los Angeles. Korean companies in Florida, for example, include Kyung-Gi Floriculture, Daelim, Daewoo Electronics, Hankoo Sewing Machine, Hyundai Motors, Samsung Telecommunications and more.

Korean companies in other states include: LG (Alabama), Daewoo Heavy Industries (Georgia), Hyosung (North Carolina), Peace Textile America (South Carolina), Hanjin Transportation (Tennessee), Cho Yang America (Virginia), and so on.

All these interactions at the company level lead to the trade figures that the general public are often exposed to. Korean exports to the U.S. were $18.2 billion in 1992 but have increased to over $30 billion in recent years, peaking at $37.8 billion in 2000. U.S. exports to Korea were $18.3 billion in 1992 and have increased to over $20 billion, peaking at $33.3 billion in 1996. These trades create tens of thousands of well-paying jobs in both countries.

To further encourage the bilateral trade, the Korea-U.S. and U.S.-Korea Business Councils have formed a joint task force to work on a Korea-U.S. Bilateral Investment Treaty (BIT) and Free Trade Agreement between the two countries. Completing the BIT is believed to be the AMCHAM’s main goal this year.

The depth of interaction between Koreans and Americans goes much deeper than all the trade talks and organizational contacts. One day while I was in Korea, I was surprised to see an American competing on TV by singing Korean songs in perfect Korean. It was surprising because the Korean language is not an easy language to learn due to its virtually unlimited ways of expressing subtle differences in feelings. Singing a Korean song in perfect Korean means that the American must love Korea just as much as Koreans.

The other side of the coin is that the roots of Korean-Americans in American society run really deep. During September last year, the Korean Southeast Journal, a Korean newspaper in the Atlanta metro, surveyed Korean-American businesspeople. According to the survey, 32 percent worked 40 to 50 hours per week, 26 percent worked 50 to 60 hours per week, and 42 percent worked more than 60 hours per week. Last year was the 100th anniversary of the first immigration of Koreans to the U.S.

According to the April 4 and April 11 issues of The Korean Southeast News, there are 4,084 Korean-Americans serving in the U.S. military of which about 800 to 1,000 soldiers were sent to the Iraqi battlefield. Of the 4,084, no less than 3,602 soldiers were American citizens with the remainder being permanent residents. Most, if not all, Korean-American soldiers are reported to have joined the U.S. military not because they had to, but because they wanted to. Let us not forget that we still have many, albeit aging, Korean War veterans who deeply care about the future of Korea and its ties to the U.S.

It takes time but the number of Korean-Americans who are participating in the American community’s social welfare has been rising. I am very proud of my Korean heritage. When I served as president of the local United Way Planning Division, president of the local Homeless Coalition, and as general chair of the Mobile United with about 300 community leaders as its members including mayors, commissioners, school superintendents, artists, chamber of commerce leaders, and a congressman, I let everyone know that I am a proud Korean-American.

I believe that this is the real fabric of U.S.-Korea economic relations.

Strong Security Ties Key to Prosperity

By Chang Se-moon
May 2, 2003

MOBILE, Ala _ Did you know that South Korea’s President Roh Moo-hyun said he tried cosmetic preparation botox but didn’t like it? I think the experiment reflects President Roh’s willingness to try not just new products, but also new ideas. It is President Roh’s first visit to the U.S. Unlike his botox experiment, Roh will be overwhelmed with many new ideas and hopefully be able to absorb them well.

President Bush, when you talk to President Roh, you will be speaking not only to 40 million South Koreans, but also to nearly one million Koreans and Korean-Americans living in the U.S. who care about the U.S. as much as they do about Korea.

According to the April 4 and 11 issues of The Korean Southeast News, there are 4,084 Korean-Americans serving in the U.S. military, of which approximately 800 to 1,000 soldiers were sent to the Iraqi battlefield. Of the 4,084, no less than 3,602 soldiers were American citizens, with the remainder being permanent residents.

Most, if not all, Korean-American soldiers have joined the U.S. military by choice. In addition, we have many, albeit aging, Korean War veterans who deeply care about the future of Korea and its relation with the U.S.

Many Korean-Americans, including myself, supported your war efforts in Iraq. I am just a country professor, but had good explanations for your war efforts. When Michael Moore accused you of being a fictitious president elected through a fictitious election during Oscar night, I told my students that Moore had no understanding whatsoever of democracy. In a democracy, all you need is a one vote difference to be elected and represent the entire country.

When the husband of one of my students was sent to Iraq, my class bought a card, wrote an encouraging note and mailed the card with our signatures to the soldier. When some skeptics wanted the finding of weapons of mass destruction in Iraq to justify your war efforts in Iraq and criticized the war as being inhumane, I defended you by writing in the April 17 issue of The Korea Times that ``the war against Iraq should be viewed as a courageous effort to stop brutal dictators like Saddam Hussein, who killed thousands of innocent people, from continuing their crimes against humanity. If a war trying to remove a mass-murdering dictator is inhumane, what is a humane war?’’

Dear President Bush; I know there are several key economic issues that you and President Roh plan to discuss, including the Free Trade Agreement and the Bilateral Investment Treaty between the two countries.

The economic relations between Korea and the U.S. run deep, well beyond the increasing amount of trade between the two nations, which in recent years reached over $20 billion in U.S. exports to Korea and more than $30 billion in Korean exports to the U.S.

Underlying these figures is the real fabric of the relation between Korea and the U.S., which is the continuing interaction among Koreans, Americans and Korean-Americans.

The number of Korean businesses operating in the U.S. is too large to count. Everybody knows that there are hundreds of branches of Korean businesses in New York and Los Angeles alone.

Not too many people know that there are many branches of Korean businesses, not businesses owned by Korean-Americans, outside large cities such as New York and Los Angeles.

Korean companies in the State of Florida alone include Kyung-Gi Floriculture, Daelim, Daewoo Electronics, DS Carbotek, Hanjin Shipping Corp., Hankoo Sewing Machine, Hyundai Motors, Inko Headwear, KIA Motors, Korean Sewing Machine, LG Electronics Miami Office, Sunstar, Samsung Electronics and Samsung Telecommunications, among others.

There are many U.S. businesses in Korea also. In fact, the American Chamber of Commerce in Korea, better known as AMCHAM, has grown to over 2,300 members and includes more than 1,000 member companies. The names of new members included in AMCHAM’s latest annual directory include: Lehman Brothers, IBM Business Consulting Services, Boeing Company, New York Life Insurance, Hyatt Regency Incheon, Pizza Hut Korea, U.S. HealthCare System, Honeywell Electronic Materials Korea and Yahoo! Korea Corp.

President Bush; The Korean economy needs a strong sense of security to continue its remarkable post-war growth and contributions toward the global economy.

Without a strong sense of security, foreign direct investment and foreign portfolio investment will fall, as they have since North Korea breached the 1994 agreement to halt its nuclear program.

The decline will eventually lower Korea’s economic growth and have a negative impact on U.S. exports to Korea. A strong sense of security in Korea requires a strong political alliance between Korea and the U.S.

All this discussion leads to your personal relation to Korea’s President Roh. When you meet President Roh, I think you will like him. As a former human rights activist, Roh was somewhat naive in his view of global politics, especially when that is related to games that North Korea had been playing.

President Roh, however, has a quick learning curve, assisted in large part by the North’s continuing rejection of Roh’s peace gestures. He has now become a staunch supporter of a strong alliance between Korea and the United States. In addition, you will like many reform ideas that President Roh has brought to his new administration.

Koreans, Americans and Korean-Americans all expect you and President Roh to re-affirm the importance of a strong alliance between Korea and the United States.

Any mention of war hurts the Korean economy, weakening the democratic bond between the two countries. It is virtually impossible to attack the North, no matter how badly they behave, because the physical distance from Seoul with 15 million people to North Korean troops is closer than that from the White House to Baltimore.

To get rid of any possibility of an invasion from the North, however, you and President Roh have to agree to maintain an unshakeable deterrence against a possible attack from the North.

Korea is not any different from the U.S. in that personal relations are important. Good personal relations between you and President Roh will nurture mutual trust and confidence, which will eventually spill over into political decisions, and, in turn, effect the business environment, benefiting both the Korean and U.S. economies.

The writer is the professor of economics at the University of South Alabama and a member of The Korea Times Economic Editorial Board. His e-mail address is schang@jaguar1.usouthal.edu. _ E.D.

SARS and Korean Economy

By Chang Se-moon
May 1, 2003

If somehow Korea can keep clear of SARS infection, there may be a room for Korea to minimize the adverse impact from SARS epidemic and possibly turn its negative impact into a positive one. It really depends on how well Korea can protect itself from the SARS epidemic.

SARS was reported to have started in China last year. Although the epidemic may have peaked in Canada, Hong Kong, Singapore and Vietnam, the SARS virus is expected to stay with us for many years to come. Economic costs cited in the news media are already significant. The April 26 issue of the New Zealand Herald reports economic costs, as calculated by the Far Eastern Economic Review, of $1.7 billion for Hong Kong, $2.2 billion for China; $2 billion for Korea, $950 million for Singapore, and $1 billion for Japan. The WHO estimates the global cost of SARS to reach $30 billion. The cost estimate, especially for China, may be an underestimation. All these numbers translate into the pain of individual companies.

So far, Japan Airlines said overseas flight reservations have fallen by 37 percent, while All Nippon’s overseas bookings have dropped by 34 percent. The occupancy rate of the world famous Mandarin Oriental hotel in Hong Kong has fallen below 10 percent. Hotel occupancy rates in Malaysia, which has less than 10 reported cases of SARS, have dropped to as low as 30 percent. Air India suspended all flights from New Delhi to Singapore, a nation with about 200 reported cases of SARS but with a reputation of tight control of the epidemic. Some jumbo jets departing the west coast of the United States for Asian nations infected with SARS are rumored to have been virtually empty in recent days.

The problems that Chinese restaurants have in large cities of the U.S. are well documented. Many of these restaurants are suffering a 60 percent or more decline in traffic, while others are hurt badly after a false email was circulated saying the owner died of SARS. A professional guide on a walking tour of San Francisco’s Chinatown had no one to show up on one April day for the first time in 20 years.

Corporations across the globe are banning travel to Asia, not just China and Hong Kong. According to the Business Travel Coalition, over 60 percent of its member firms banned travel to Asia late in April from the 27 percent level on April 1.

The adverse impact of SARS is not limited to the frontline of the travel industry, such as hotels and restaurants. The impact will extend deeper into other industries. When the travel industry loses so much business, all their suppliers will also suffer just as badly. These businesses include grocery suppliers, paper products, food delivery businesses, taxi companies and their drivers, limousine operators, car rental firms, gift shops, massage parlors, drinking places, alcoholic beverage manufacturers and dealers, exporters of food items, public relation firms, advertisers, news media, and all other retailers that depend on customers from these industries.

The list continues to manufacturing firms operating in areas heavily infected by SARS, exporters of products produced by these manufacturing firms, employees of these firms, and more. Because of the SARS-led slowdown in the world economy, OPEC lowered its forecast of global demand for crude oil this year by 80,000 barrels to 77.35 million barrels per day.

Korean businesses are not immune to the adverse impact. Several businesses in China are directly affected. Samsung, LG Electronics and Hyundai Motor cut back their operating hours, undermining their export targets. Although detailed reports are yet to be released to the public, many businesses in Korea are believed to be hurting from SARS fear. These businesses may include Korean Air and Asiana, leading hotels that host international conferences and guests, service providers to these hotels and airlines, places that attract people by the nature of their business such as amusement parks, restaurants, market places, and music halls, and eventually tax revenues.

What can Korean businesses do to minimize these negative impacts and possibly reverse the trend? As stated in the beginning of this article, it all depends on how tightly Korea can protect itself from SARS. If Korea is to successfully protect itself against SARS, there are some options.

One important issue that business leaders and government policymakers have to keep in mind is that they should pay extra attention to make sure that all exports are clear of the virus. So far, SARS is reported to transfer only through human contact. No report has associated the virus with cargo traffic. It is probably a good idea to improve quality control by doubling inspections of Korea’s exports and consider a seal assuring that the cargo is guaranteed to be free of the SARS virus.

Another aspect of the economic impact of SARS is that not all industries will be affected adversely by the epidemic. Some businesses will benefit. First of all, domestic attractions will benefit because those who planned to spend money on overseas travel will now explore domestic attractions. When terrorists attacked the twin towers in New York, attractions and casinos that depended on air travel experienced a significant decrease in business, but attractions and casinos that depended on driving customers were either unaffected or experienced an increase in business. Secondly, some industries that cater to substitutes for traveling will also benefit. These industries include electronic equipment that allows teleconferencing, webcasting, and other means of long distance communication. Korean companies are well positioned to benefit from this industry as an alternative to overseas or even domestic travels for business meetings.

Perhaps more importantly, a large amount of Chinese exports will be delayed and likely canceled by importers in the U.S. and many other countries all over the world. Possible SARS-induced supply disruptions of Chinese exports have already surfaced through reporting by more than 70 companies, which include Accenture, Waterpik, K-Swiss, to the U.S. Securities and Exchange Commission. This is likely a beginning. The disruptions will last for a while until re-arrangements are worked out, which may include searches for new suppliers. This is a unique opportunity for Korea to regain some of the markets that it lost to China in recent years. USA Today reports that China’s share of U.S. imports on selected products are 64.1 percent for footwear, 64 percent for toys, 63.3 percent for non-textile household goods, 54.1 percent for stereo equipment, and 53.2 percent for camping gear. These are products that Korea exported in earlier years. The potential extends well beyond these products as anyone who visited U.S. retail stores can testify.

Due to higher wages in Korea than in China, it may not be easy to increase Korea’s market share significantly. The possibility is there, however, since many of these products can be produced by Korean companies in countries not affected by the epidemic. [schang@jaguar1.usouthal.edu] 

Improving Korea's Image Abroad

By Chang Se-moon
Professor of University of South Alabama

MOBILE, Alabama _ I do not remember when it started. All I know is that I have been receiving a magazine, called LOOK JAPAN from Japan every month. Articles in the magazine are written in English and mostly non-political, but quite informative. I also do not remember when it started, but a state university in Alabama has a sister-university relation with Japan and has been sponsoring sakura festivals every year. Both practices enable ordinary Americans to think of Japan, well, just as a friend.

I know the Korean economy is going through a tough time. Lately, the Bank of Korea and the Korea Development Institute lowered their forecasts for economic growth to about 4 percent from their initial projection of nearly 6 percent; stock prices have been falling; foreign direct investment has been declining; the Korean currency has been losing value against the dollar; and the current account has been turning into the red even with the depreciating currency.

Sadly, these events were all predictable. In the February 5 issue of this column, I stated that the impression of an unstable business environment would eventually lead to lower foreign direct investment; sales of stocks and bonds in Korea's financial markets lowering stock prices; increasing unemployment; slowing economic growth; relocations of chaebol operations to other nations especially the U.S.; and adverse impacts on exports. In the March 16 issue of this column, I stated that it would be a matter of time before economists would make downward revisions on their forecasts of the Korean economy. The future is also predictable in that Korea’s economic problems just started and would last a long time unless strong efforts are made to reverse the trend.

Some of the causes for the current economic problems in Korea such as a slowed global economy, increased global competition from the Uruguay Round negotiations, and ripple effects of lies by North Korean leaders on the nuclear issue are beyond Korea’s control. However other causes are self-made and can be corrected.

Several policy remedies were already spelled out on March 27 by Deputy Prime Minister and Finance-Economy Minister Kim Jin-pyo, through such measures as proposed elimination of regulatory barriers to competition; tax incentives for long-term investment; greater competition in business and consumer financial markets; greater transparency in accounting and business management; rigorous applications of rules and regulations; improved dialogue in labor-management relations; measures for developing logistic hubs of Northeast Asian businesses; social reform for a more equitable distribution of income and wealth; and more. The government’s efforts to continue business reforms and initiate social welfare reforms are important for the long-term health of the Korean economy and should be supported by all. Additional reform measures in the areas of the labor market, intellectual property rights, pharmaceuticals, automobiles and legal services will have to be pursued as suggested by the American Chamber of Commerce in Korea.

One bright side of the Korean economy is that it is a market economy. Many important decisions on marketing, exporting and production are made by hard-working managers and workers of Korea’s private sector. This important aspect of the Korean economy is demonstrated by increases in production and shipment this year despite falling foreign direct investment.

In addition to the Roh Moo-hyun administration’s ongoing pursuit for corporate and social welfare reforms, two issues merit special attention from Korea’s policymakers: The perceived relationship between Korea and the U.S. that has cast growing jitters among international investors and the long-term promotion of Korea’s image abroad.

The importance of strengthening political relations between Korea and the U.S. in securing foreign direct and portfolio investments in Korea has been stressed by many including myself through this column. This is one key area in which President Roh and his administration can make a real difference to improve the Korean economy. It is a relief to hear President Roh stressing the importance of a strong alliance between Korea and the United States.

My suggestion on the relation between the two countries is that President Roh tries to develop personal relationships with U.S. leaders and unify public opinions in Korea toward strengthening the alliance between the two countries. Without these efforts, the Korean economy will incur more troubles for many years to come.

One example proving the point is Korea’s reluctance to dispatch its troops to Iraq. The deeply divided National Assembly approved the government’s motion to dispatch 700 military engineers and medics to Iraq, while the Roh administration allegedly rejected a request by the U.S. to dispatch additional forces to Iraq to man prisoners of war and refugee camps.

To those of us observing these developments from this side the Pacific Ocean, Korea’s support of the U.S. war efforts in Iraq seems lukewarm at best. The limited and divided support from Korea surely didn’t look like that from a nation which is protected by tens of thousands of U.S. troops. I am hoping that President Roh tries much harder to rally public opinions in Korea to support a stronger tie between the two nations. This will go a long way toward cementing a stable image of the Korean economy.

Economic impacts of what many in the U.S. perceive as lukewarm support may well be the exclusion of Korean firms from the economic restructuring process in Iraq and a possible loss of the large amount of payment from the new Iraqi government for services rendered by Korean businesses prior to the war.

Some in Korea have argued, and may still do, that the war was illegal and inhumane. But shouldn’t the war against Iraq be viewed as a courageous effort to stop brutal dictators like Hussein, who killed thousands of innocent people, from continuing their crimes against humanity? If a war trying to remove a mass-murdering dictator is inhumane, what is a humane war? It now appears that Korea is one of the direct beneficiaries of the Iraq war since North Korea may be giving in to the U.S. demand of a multilateral talk over the North’s nuclear program.

The U.S. is not any different from Korea in that personal relations are important. Good personal relations between the leaders of the two countries will nurture mutual trust and confidence that will eventually spill over into the political arena. In turn, this will significantly affect the business environment through an improved image of the Korean economy to global investors.

Korea’s policymakers should also consider the other of the two issues that I suggest; long-term promotion of Korea’s overseas image. Like LOOK JAPAN, Korea may publish colorful promotional magazines for circulation across the globe.

The magazine may be comprised of short pieces of informative articles with many pictures that can appeal more to readers’ hearts than to their brains. Korea’s success in the global marketplace can be sustained only so long as Korea’s image remains favorable in the minds of global consumers of Korean products.

The writer is a member of The Korea Times Economic Editorial Board and his e-mail address is schang@jaguar1.usouthal.edu.
 

Primer on Employer-Employee Relationship

By Chang Se-moon
University of South Alabama
04/01/03

Someone once said, ``He who carefully listens, calmly speaks, coolly answers, and ceases when he has no more to say, is in possession of the best requisites of man.'' In the modern business environment, which has been tilting heavily toward the western style, it may be the best requisite of man but not necessarily the best requisite of an employee.

After having experienced some tough relations with few employees that I had, I decided to do some research on human relations and make improvements in approaching employees. The last time I had to let an employee go, I did not fire the person. I told her that she would no longer be able to work for me because of budgetary reasons and she would be welcome to use my name as a reference. I am a firm believer of ``never cut what can be untied.''

From the perspective of an employee, it has been widely known that a degree from a good university will get the person a job of his or her preference. How successful the person becomes after getting a job, however, depends almost entirely on the person's attitude and communication skills. In this article, I would like to focus on the attitude issue.

When I watch successful people, there is a common factor in that they all have a positive attitude. When employees are positive about the work and the company, they are usually more energetic, more motivated, and more productive. It is very difficult to maintain a high level of productivity while working next to a person with a negative attitude. A positive attitude does not mean that a person has to smile all the time. Some people transmit a positive attitude even though they seldom smile. They do this by the way they treat others, the way they look at their responsibilities, and the perspective they take when faced with a problem. Chances are that employees with positive attitude will be more successful with the company.

Employees should also be careful about maintaining good relations with other employees. For instance, employees need to avoid concentrating on building a good relationship with their supervisor at the expense of good relationships with fellow workers. Flattering supervisors to the detriment of other workers may work in the short run, but not in the long run. Also, it is not good to be a part of a rumor mill. Rumors may not be true. Even if true, rumors are usually none of other people's business. As the saying goes, if you cannot say something good about others, don't say anything.

It is also a mistake to impose one's personal values on other employees, especially in the working environment. What a fellow worker does with his life off the job is his own business and should have nothing to do with the relationship you build with him on the job. Whether a fellow worker is homosexual, is in the process of a divorce, or drinks heavily at times, these issues should not impede your working relationship with the person on the job.

Employees, especially new employees, have a tendency to underestimate contributions made by others, particularly those in management positions. As a non-supervisor new to the organization, you have no way of knowing the multiple responsibilities faced by other people and the numerous ways through which other employees contribute to the organization, especially when these people are already in management positions. Do not prejudge others.

Employees have a tendency to dislike their supervisors. However, it is important to keep in mind that there is no way to avoid the fact that your supervisor is a very important person whom you must learn to cope with. I heard someone once saying that bad supervisors are like a recession; you just have to wait until they are gone. Reality does not work in such simple ways.

On the one hand, all supervisors have to understand that the primary responsibility for creating and maintaining a strong vertical relationship rests with the supervisor, not with employees. If the relationship line is in need of repair, it is primarily the supervisor's responsibility to initiate a discussion and repair the damage. Perhaps the most important way of maintaining a good relationship between employees and supervisors is free and open communication. In other words, please talk to each other. On the other hand, employees should never go above the supervisor's head without talking to him or her first. The quickest way to destroy your relationship with your supervisor is to go over his head on a problem that involves him or his department.

Employees should always be loyal to their company or organization. This does not mean that employees automatically accept all of the policies and practices that filter down from the top. Far from it. Employees should remain loyal by accepting the responsibility of making changes if the policies and practices are faulty.

It is only natural that employees will feel frustrated at times. What happens when employees become frustrated? They become aggressive. When the steam boiler builds up so much pressure inside, some of the steam must be released. If there is no safety valve, the boiler will explode. Again, this is another reason why communication is so important. For employees, it is important to learn to release inner tensions without saying the wrong thing to the wrong people. When an employee takes out his or her inner frustrations in the form of silence, the silent person himself suffers the most. Silence as a form of protest is most destructive to the human personality.

Employees need to learn to be patient. I have seen many of my friends, who were promoted while they were very young to the envy of many others, retire much sooner than others.

Yes, resignations do happen because of a better opportunity and sometimes because of total frustration and disappointment. As a general rule, you should resign when you have been unhappy and unproductive for a considerable length of time. In most resignations, however, the causes are more personality conflicts and human problems than frustrations and disappointments.

A resignation should not be an impulsive decision, because, in the majority of cases, it is irrevocable. For employees, always resign a position in such a manner that you will feel free to seek employment again at a later date no matter what the reasons for resignation may be. If possible, try to resign after you find another position because once you resign, you have one more question to answer when you are interviewed for a new position. For employers, always make sure that the separation is friendly and to never cut what can be untied especially in today's litigation-happy environment.

I have the following reprint on the wall of my office. ``Dear Ann Landers: My brother hates his boss and everyone he works with and talks about them constantly. I recall a quote in your column by Elbert Hubbard that had to do with company loyalty. Please run it again _ I Read You in Chattanooga'' This is how Ann Landers answered: ``If you growl, condemn, and eternally find fault, resign your position, and when you are on the outside, damn to your heart's content. But so long as you are part of the institution, do not criticize it or the first high wind that comes along will blow you away and you will never know why.'' [schang@jaguar1.usouthal.edu]

Foreign Investors View Roh as Less Business-Friendly

Online Roundtable Discussion With KT Economic Editorial Board Members
03/21/03

Chang Se-moon: SK scandal should not lead to chaebol-bashing Kim Jene-chon:Roh’s Administration should change color of economic policies

Christopher Lingle: Scrapping intrusive bureaucratic intervention key to FDI

Lee Phil-sang: Nuclear Issue May Fan Social, Economic Unrest

Kim Jene-chon: Roh administration should change color of economic policies

The economy is reeling from financial scandals at the SK Group, continuing pressure from consumer delinquency and geopolitical tensions surrounding the North Korean nuclear standoff.

To discuss the economic issues and future prospects for the country, The Korea Times conducted an online roundtable discussion with four of its Economic Editorial Board members.

The economists took a sanguine view of the economy, saying it would manage the accounting woes at SK Group, but hinted at change in the old system of smoke and mirrors exercised by family-controlled conglomerates.

Chang Se-moon, an economics professor at the University of South Alabama, said President Roh Moo-hyun should develop policies toward business in line with market principles.

Christopher Lingle, a global strategist for eConoLytics.com, pointed out that changes appearing in macro conditions are transitory but leave behind a variety of distortions in the microeconomy. Only increased productivity as the basis for increased real savings can bring about sustainable increases in production and consumption, he noted.

Lee Phil-sang, an economics professor at Korea University, called for emergency measures to stabilize the financial market and to activate business, while boosting the transparency of capital markets.

Kim Jene-chon, another economics professor at the University of South Alabama, suggested closer policy coordination with the Bank of Korea, while recommending the early execution of short-term fiscal plans.

The following is an edited text of the online roundtable discussion. _ ED.

Problems in the Economy

Chang Se-moon: There are two types of problems _ those common to many countries and those that are unique to Korea. Problems that are common to many countries are slowing economic growth, unfair distribution of income, underemployment, and insufficient tax revenue.

There are two problems that are unique to Korea. One is the way business decisions are made outside the framework of rules and regulations, and the other may be summed up as uncertainty created by threats from North Korea.

Christopher Lingle: Perhaps it is better to start with what is good with the economy. Over the past five years, aggressive implementation of policy initiatives have moved Korea further ahead of laggards like Japan where the slogan is an empty promise. And a recent survey of international executives indicates that the consensus perception is that graft and corruption in Korea are much less prevalent now than before.

While there is still room for improvement, the domestic sector of the economy is much stronger. This means that the overall economy is less vulnerable to external shocks and more resilient. In fact, it is likely that the economy is performing better than indicated by conventional GDP measures.

As elsewhere, most perceived problems in the economy are the result of misguided government policy. Most of the difficulties rely on nostrums based on Keynesian economic logic and reluctance among politicians and bureaucrats to make tough decisions, especially with regard to increasing the flexibility of the labor market.

Lee Phil-sang: Both the real sector and the financial sector are experiencing extreme difficulties. The growth engine is dying out as the bubble of construction and consumption collapses. Exports are also turning sluggish with the oil price hike. The trade account has already recorded a deficit for two months in a row. The SK Global accounting fraud scandal is feared to lower the national credit rating, and further aggravate the already stumbling economy.

Kim Jene-chon: The external factors surrounding the economy are negative. They are the sagging world economy, which will reduce the demand for Korean products, the uncertainty about the prospects of the U.S. war with Iraq and the North Korean nuclear threat, which will make South Korea a not-so-attractive place for investment.

The internal factors are not good, either. Exports are losing competitiveness in terms of price and this is reflected in the declining trade surplus. Uncertainties about the new government's economic policy, about the SK scandal, and about corporate reforms are making South Korea a dangerous place to invest their money in.

Attracting Foreign Investment

Chang: One question that policymakers of the Roh administration need to ask themselves is why foreigners should invest in Korea. A casual answer may be that Korea provides greater profit prospects than other nations. Realistically, the answer may depend on whether investment by foreigners is portfolio investment, such as purchasing stocks and bonds that can be quickly liquidated, or a foreign direct investment that represents a long-term commitment.

To encourage portfolio investments by foreigners, it is important to continue structural reforms in the financial sector with special reference to ensuring transparency in corporate governance and accounting practices that can improve the trust and confidence of foreign investors in Korea's financial markets.

To encourage foreign direct investment, Korea needs political stability as well as corporate transparency. Foreign direct investment in Korea is likely to decline for a while because of the threat the North poses to national security.

The decline in foreign direct investment is unfortunate because its impact is felt over several years and also because the impact is magnified through the multiplier effect. All efforts should be made to neutralize the North's threat to calm foreign investors.

Lingle: The first step should be to take an inventory of rules and regulations to find out what can be done to move the country away from a bank-dominated financial system. This is because before foreign investors are attracted to overseas investors. There must be a better functioning domestic capital market that will also make it interesting for local investors to stay at home.

The judiciary has to earn a better reputation for its competent and independent judges to make both foreign and local investors more confident about the security of their funds. The next step is to liberalize the financial sector by providing less political or bureaucratic interference combined with well-designed but non-intrusive oversight.

Lee: The Roh administration must first concentrate all diplomatic efforts on resolving peacefully the North Korean nuclear problem. The continued threat of North Korean nuclear development, which may well lead to war, will escalate economic and social unrest. The reform of conglomerates must be pursued consistently to remove all kinds of irregularities, including accounting fraud, stock price manipulation and insider trading.

Business-related restrictions and regulations must be removed to stimulate investment and attract foreign investors. There must be efforts to bolster investor confidence through full-scale reform in the accounting and regulatory system.

Kim: First, they should change the color of their economic policies. Instead of giving others the impression that they are anti-conglomerate, declare that the government is all for business activity, while holding corporations accountable for their wrongdoings and demanding changes in wrong business practices. Roh's administration is seen here as less business-friendly and more confrontational with the business community.

Second, declare that they will do their best to make South Korea one of the most business-friendly places and take all necessary measures, such as removing unnecessary regulations, setting up a genuine one-stop service for foreigners, providing a drastic tax exemption for foreign direct investors and providing a special zone for foreigners, among other things.

Third, try to actively reduce the tension from North Korea's nuclear threat through dialogue with the U.S., China, Russia, Japan and North Korea directly. We have not seen any of this yet.

SK Scandal

Chang: SK Global's scandal is a symptom of the way the rich and powerful take advantage of the poor and powerless in Korean society. In this case, the allegations are stock price manipulation, accounting malpractice, and exploitation of loopholes in tax laws to transfer wealth from owners to their family members.

This is one of domestic issues President Roh is expected to handle well. The point is to please let the law handle it. Anyone who violated law should be punished to the full extent of the law. If they did not violate law, they should not be punished regardless of how much we hate their behavior. Separately from legal proceedings, the Roh administration should support conglomerates, appreciate their huge contributions to the economy, and expect them to continue their economic contributions.

An important consideration has to be that big business’ contributions to the economy cannot be an excuse for their violation of laws or protection of those who violate laws, nor can a violation of laws by a select few be the basis for ignoring the recognition of their economic contribution. It is not easy to separate the two issues, but they should be discrete.

Lingle: This is a classic example where a hasty political response can cause more harm than good. Market-propping responses by the central bank to halt sliding bond prices by pumping in liquidity or buying bonds directly from the market will create credit anomalies and weaken its own asset base.

In all events, despite the accounting and stock-fraud scandal at SK Group, its parent conglomerate, SK Corp., has no liquidity problems.

Lee: It is the typical type of fraud committed by conglomerates. Since the IMF crisis in 1997, the government has continuously implemented a restructuring plan, spending 159 trillion won in public funds. It is very disappointing to find the SK Group, which is third-largest Korean conglomerate, stricken with such a fraud.

Various reform measures should be undertaken to correct the governance structure of corporations, including allowing class action lawsuits, reforming the accounting system, adopting an all-inclusive inheritance and gifts tax system, and separating the financial units of business groups, among other things.

Fortunately, the financial problems involving SK Global are isolated. The scandal will provide momentum for the government to promote transparency. Reform, however, should be pursued flexibly without hurting corporate entrepreneurial spirit.

Kim: Of course, this kind of accounting fraud should be strictly punished with no exceptions. However, a permanent system of detecting such wrongdoings should be put in place instead of the public prosecutor's office initiating investigations. The Financial Supervisory Commission should be given more power and resources to cover such matters. The government should not lose consistency in strictly enforcing the law from now on.

Economy Needs a Convincing Sense of National Security

By Chang Se-moon
University of South Alabama
03/16/03

Congratulations on your inauguration as the 16th President of Republic of Korea. I really want to talk to you in person and let you know how I feel about several important issues. I realize that chances for me to be able to talk to you in person are virtually zero. Further, you have been hearing literally thousands of pieces of good advise since you were elected president last December. By now you may even feel tired of hearing any more advise.

I still want to talk to you and tell you how much I admire your willpower and perseverance. Your rise to success from a humble beginning inspires many ordinary people to achieve their own success.

I also want to talk to you about the four tenets for your presidency _ principles and trust, transparency and fairness, dialogue and compromise, decentralization and autonomy _ and how they can be applied to your visions that you spelled out in your inauguration address.

Mr. President: Trust and fairness require justice to every one. I don’t believe your job is to make sure people who allegedly violate the law be punished or not punished _ it is a job for law enforcement and the court system. As busy as you are, all you have to do is to make sure that law enforcement officials apply laws fairly and thoroughly. One example relates to the alleged illegal transfer of about $200 million to the North. Law enforcement officials should be allowed to investigate thoroughly and identify whoever may have violated the law. Any political intervention or consideration comes after the investigation is completed. There is a saying in the west to let the chips fall where they may. The need for a thorough investigation has become even more important because the North does not want your administration to undertake the investigation.

Another example relates to investigation of chaebol as to their alleged stock price manipulation, accounting mal-practices and exploitation of loopholes in tax laws to transfer wealth from owners to their family members. Anyone who violates the law should be punished to the full extent of the law. Because of your courageous background, we all expect you to support exactly that. At the same time, you as President have to make it clear that your administration supports chaebol, appreciates their huge contributions to the economy, and expects them to continue to contribute to the economy. Chaebol contributions to the economy cannot be an excuse for their violation of laws, nor can a violation of laws by a select few be the basis for neglecting the recognition of their economic contributions. It is not easy to separate the two, but they are two separate issues.

Media reports indicate that you intend to reach out to the general public through the Internet, bypassing existing mass media. As I stressed in the past through this column, there would be no democracy without the freedom of the press and there would be no market economy without democracy. The best policy on mass media is to leave it to market competition. This will work well here because the market of news media is highly competitive. Before you rely on the Internet as a primary tool of communication, please feel empathy for the mature generation, which does not communicate through the Internet, and think about the poor and less educated people who may not have an access to computers. The question you might want to ask yourself is not how to reform mass media, but why not leave mass media to market competition.

On your ambition of building the country as the business hub of Northeast Asia, the first ingredient that has to be in place is the political stability because many foreign investors will stop investing here so long as our security remains under a threat from the North. Even with a stable political environment, it is not easy to develop a business hub. Note that in the July 2002 issue of the Look Japan, Kawai Masahiro, deputy vice minister for international finance at the Japan’s Ministry of Finance, wrote that ``Japan and China are two big powers and, together with ASEAN, will have to work jointly for further economic cooperation in the region.’’ Did you notice that he never mentioned Korea?

There are several rapid developments in progress for regional cooperation in East Asia, including China’s agreement with ASEAN nations to organize ASEAN-China free trade area; the bilateral investment treaty that Japan and Korea signed in early 2002; and several mechanisms put into place for regional policy dialogue, such as the ASEAN+3 Economic Review and Policy Dialogue, the Manila Framework, and the Executive's Meeting of East Asia-Pacific Central Banks. Perhaps, the most important consideration that policy makers who push for developing this country to become East Asia’s business hub is to make sure that we is not left out of any regional economic cooperative organization. Again, the most important contribution you can make towards establishing a business hub is to create a sense of security and stability.

You are absolutely right, Mr. President, in believing that there should never be a war on the Korean peninsula. You are also courageous in proposing North Korea to join in building mutual trust by becoming a full partner in the peaceful resolution of the North’s nuclear program. As you stated correctly, however, it is up to Pyongyang whether to go ahead and obtain nuclear weapons or to secure guarantees for the security of its regime and international economic support. No one here or in the U.S. wants a war, Mr. President. The key question is: what is the best way of avoiding a war?

I feel that you are too idealistic to believe that the nuclear issue is a problem between the North and the U.S. Doesn’t it make you wonder that the North wants to talk directly with the U.S. ignoring the South and all your sincere suggestions? Doesn’t it also make you wonder why the North sends a missile to the East Sea rather than a congratulatory envoy on the day of your inauguration? Many people are hoping that your overture of peace to the North somehow works wonders in such way that the North makes concessions and we all return to peaceful coexistence. Many others believe that the best way of preventing a war here is to pronounce an unshakeable solidarity between Korea and the United States as far as national security is concerned. Please understand, Mr. President, that the less solid the relation is between Korea and the U.S., the less stable society becomes; and the less stable this society is, the more damage it will do on the economy _ in more ways than any one person can imagine.

As you know in recent months, Mr. President, foreign direct investment has been falling, hotel reservations are being canceled, and consumer expenditures are struggling to improve. As uncertainty continues, more chaebol will consider relocating their operations overseas and exports will fall. All these adverse economic conditions will have a magnified adverse impact on the economy through what we economists call the multiplier effect. It will be a matter of time that economists will make downward revisions on their forecasts of the economy.

Scholars have long recognized a weakness of the ``sunshine’’ policy in that it lacked mutual promotion of CBM (confidence building measures) such as troop withdrawals especially by the North from the 38th parallel. I can tell you, Mr. President, we still need a CBM, but a little different kind: consensus-building measures within the South. Our country cannot afford to be split between pro- and anti-Americanism, or between pro- and anti-North Korea. The discussion of the withdrawal of the U.S. troops can come later after the North’s nuclear issue has been settled, but not today or tomorrow. The economy needs a convincing sense of national security to function properly. Mr. President: You have an open invitation to visit my home when you come to the U.S. so that we can talk over all these issues in person.

Freedom of the Press and Media Reform

By Chang Se-moon
University of South Alabama
02/14/03

During the several months before and after the Korea's presidential election, there have been media reports of statements that were highly critical of the press allegedly expressed by those working closely with President Roh. President Roh himself, who had a bitter fight with big newspapers during his presidential campaign, is reported to be considering "media reforms".

The freedom of the press is such an important ingredient for democracy as well as for a successful market economy that the issue merits a thoughtful consideration by Korea's new political leaders.

Recently, the World Economic Forum ranked Korea 53rd in its freedom of press index. The Korea's ranking is the lowest among all OECD member countries and is lower than such countries as Nicaragua and Namibia. Late last year, the Paris-based Reporters Without Borders issued its first ever ranking of press freedom in countries around the world. Korea was ranked 39th, while North Korea was ranked 139th out of 139 countries. Perhaps more interesting is the list of some countries that are ranked ahead of Korea. These countries include Slovenia (14th), Hungary (24th), Poland (29th), Namibia (31st), Croatia (33rd), El Salvador (tied at 33rd), Mauritius (36th), Peru (tied at 36th), and Bulgaria (38th).

In its annual report 2002 on South Korea, the Reporters Without Borders states that the press in South Korea is the opposite of that of North Korea in that the South's press is diverse, privately owned and can be critical of the government. The report, however, also includes a chronological explanation of the notorious tax audit of the Korea's press as summarized below.

In February 2001, according to the report, the Korea's National Tax Service began a general audit of the country's main media on request of the Kim Dae-jung's government. More than 400 tax officials were mobilized to check the accounts of some 20 public and private media over the previous five years. Gradually, the officials concentrated on three newspapers most critical of the government of President Kim Dae-jung. On March 1, 2001, the weekly Sisa Journal published some documents allegedly prepared by a ruling party's so-called "think tank" regarding the strategy to follow for controlling the media. According to these documents, criticism from leading conservative newspapers "reached dangerous levels". They then recommended attacking head-on these critical media.

On June 21, 2001, the National Tax Service announced that it would levy fines of about 400 million euros on twenty-three Korean media, for "embezzlement" and "tax evasion". The National Tax Service also filed personal charges against Kim Byung-kwan, honorary managing editor of the Dong-A Ilbo press group, Bang Sang-hoon, managing editor and majority shareholder of the daily Chosun Ilbo, Bang Kye-sung, managing editor of Chosun Ilbo, Kim Byung-keon, vice-president of Dong-A Ilbo, and Cho Hee-joon, former managing editor of Kookmin Ilbo. On July 15, the wife of Kim Byung-kwan of Dong-A Ilbo was found dead in front of her sister's building. On August 17, the police arrested Bang Sang-hoon, Kim Byung-kwan and Cho Hee-joon but released them later during the year. On September 4, Bang Sang-hoon, Kim Byung-kwan and Cho Hee-joon were charged, along with ten other media leaders who were not arrested.

All these sad developments occurred under the administration, and obviously the approval, of President Kim Dae-jung who won a Nobel Peace Prize for his sunshine policy. Critics cynically point out that at least Kim's approach was an improvement over guns and torture that his predecessors used to control the press that they did not like.

The International Press Institute (IPI) executive board noted late last year that developing nations were following Korea's version of the violation of the freedom of the press. Russia, Poland, and Venezuela, all of which were reviewed at the last year's IPI board meeting, were noted as taking the same actions the Kim Dae-jung administration took; namely using tools of office such as the National Tax Service, Fair Trade Commission, and prosecutors to create a climate of intimidation and hostility towards the press, threatening their independence.

Many press businesses in Korea are under massive bank loans and thus subject to government manipulation. If the bank demands payback of the loans, the press has no choice but bankruptcy. If the government does not like a particular newspaper and decides to punish it, all it has to do is to pressure the bank to call the loans. The banks cannot refuse the government's request because no bank in Korea can survive without government support. Another way of controlling the press by the government is tax audits, because most Korean businesses, including the press, are believed to compromise their tax obligations. Tax audits are not illegal and should be encouraged, but they become detrimental to society when the practice is applied to selective industries for intimidation purposes.

I think the heart of the problem is that the desire to control the media is part of the Korean culture for all those in power who tend to be arrogant, and behave as if they can do anything they want to. People who have small power exercise their arrogance over those who have even lesser power. People who work at or near the Blue House and thus have the strongest power exercise their arrogance over anyone or any group that is critical of them or sometimes thinks differently. More importantly, people who exercise the power believe that there is nothing wrong about their destructive behavior because this kind of attitude, as I said, has been part of the Korean culture among the rich and the powerful.

My sincere advise to Korea's new leaders is not to even think about controlling the press. Leaders in powerful positions can influence the media through control of the flow of information, not through intimidation. Leaders in powerful positions should understand that they are able to enjoy these positions because of the media exposure. Just imagine how Korea will look without the freedom of the press. Without free press, briberies at all levels of Korean society, illegal cash transactions between businesses and political leaders, and influence peddling for money by sons of presidents if not presidents themselves will not only continue but escalate to the extent that Korean businesses will spend more time to influence political leaders for quick profits than to produce competitive products for a long term prosperity, while foreign businesses may no longer bid on Korean projects and may stop investing in Korea all together.

It will not be easy to get rid of any thought of controlling the media. But one place where changes can and have to come from for the good of the country is President Roh, who has to make absolutely clear that the freedom of the press should and will be honored for the next five years. It is only natural for leaders in Korea to feel bad about occasional inaccurate reports or bad publicity. The problem in most cases can be corrected through an improved communication. If a bad reporting occurs as it is bound to occur in free society with so many news media, please remember that it is a small price to pay for the priceless benefits that the freedom of the press generates in promoting democracy as well as the globally successful market economy that Korea now enjoys.

Anti-Americanism & Economic Consequences

By Chang Se-moon
University of South Alabama
02/05/03

I do not live in a large city like New York, Los Angeles, Washington, Chicago, or Atlanta. I live in a smaller and rather conservative city in Alabama that I think is closer to the real America. Every single day since the middle of December last year, I have been reading an article or two on South Korea in the local newspaper, sometimes reporting factual developments and other times simply printing opinions. On the last day of last year, there was an article by AP writer Paul Shin stating that President-elect Roh "told the military to set up a contingency plan in case the United States reduces the strength of its 37,000 troops stationed in South Korea as a deterrent." Another article by columnist Georgie Ann Geyer was printed on the same day, stating that "the south is in a notably anti-American mood" after 50 years of alliance with the United States. In recent days, local newspapers printed pictures showing many Koreans in Seoul's city hall square supporting the U.S. troops.

It really worries me because events appear to be moving forward with no one controlling their final result. I feel that this is one of those times during which all of us supporting South Korea have to be united rather than waste our energy arguing against one another.

Leading South Korean economists as well as South Korean diplomats whom I met in recent days have assured me that the current anti-Americanism is more an assertive nationalism led by Koreans in their 20s and 30s than a movement against the United States. Others have also suggested the new anti-American sentiments do not represent the opinions of Koreans as a whole.

I am still worried because the anti-American sentiments in the South can be abused by the North to drive a wedge between Seoul and Washington, as demonstrated by Pyongyang's request, through its New Year's day message, for Seoul to join them in confronting the U.S. In addition, the anti-American messages that mainstream Americans receive are quite different from the assertive nationalism that South Korean leaders visiting the U.S. have told me.

It may well be a matter of perception in that anti-American activities unfolding in Korea are not a movement against the U.S. but an expression of confidence led by those in their 20s and 30s and that Americans, especially the American media, consider it more serious than what the Koreans are actually thinking. Whether the reality is a false perception by the American public or a real anti-American feeling by Koreans really doesn't matter that much, as far as its impact on the Korean economy is concerned.

Why did anti-Americanism become such a conspicuous issue in Korea at this time? The June 13, 2002 accident in which two 14-year-old schoolgirls were crushed to death by a 45-ton U.S. mine-clearing vehicle on a training exercise and the subsequent not-guilty verdict by the U.S. military court is obviously one of the reasons for the recent emergence or re-emergence of anti-Americanism.

The belief by many Koreans that President Bush's policy toward North Korea provoked leaders of North Korea and caused the current tension over the North's policy on nuclear weapons may be another reason. I even watched a prominent Korean scholar suggesting on CNN that the current tension is due to the rigid ideological confrontation between President Bush and North Korean leaders. The hawkish tone of President Bush's team may have made the matters worse. The real cause of the current tension with the North, however, is not the hawkish tone of President Bush, but the North's October 2002 admission of their existing nuclear weapons program.

Let us assume for the sake of argument that President Bush's policy has been totally complimentary toward the North. Would the North have halted its secret nuclear weapons program? Obviously not. If not, could the South be better off if the North were to continue its secret nuclear weapons program over the current tension, in which, at least, everyone knows that North Korean leaders lied and are making nuclear weapons?

It is good that South Koreans, especially those in their 20s and 30s, came to have more confidence in themselves after the remarkable achievement of the national football team, which advanced all the way to the semifinals of the 2002 World Cup. It is understandable that the newly-found confidence may have led to less tolerance toward the big brother policy of the U.S. toward Korea. This confidence, in conjunction with the view that U.S. policy is somehow responsible for the current tension over the North's nuclear weapons program, however, appears to have made a quantum leap toward the dangerous claims that the current tension is one between the North and the U.S., and that the South can and should remain neutral if the current tension escalates toward a military confrontation. A comment made by one of the presidential candidates during his campaign that the South might remain neutral if there is a war in Korea has been widely reported in the U.S. media.

Has anyone thought about the possible progression of a war if there is one? Does anyone truly believe that the South can remain neutral? What will the South do if the North, with a nuclear bomb pointing toward Seoul, asks the "neutral" South not to allow the U.S. forces to use the South's airspace and highways?

Let me discuss practical issues. How will the anti-Americanism affect the South Korean economy, assuming that it is allowed to continue or even escalate? The perception of anti-Americanism can be created through a number of ways. Peaceful candlelight vigils to remind leaders of possible shortcomings of the Status of Forces Agreement are a perfectly sound expression of assertive nationalism. The nationalism crosses the line and becomes anti-Americanism when the public is allowed to burn American flags or attack U.S. soldiers stationed in South Korea. The perception of anti-Americanism can also be created by Korean leaders through casual remarks that they may or may not intend to mean.

South Korea has enjoyed large support from the American public owing to efforts by the aging veterans of the Korean War, outreach programs of hard-working South Korean diplomats stationed in the U.S., and the conscientious Korean-American communities throughout the United States. Recent reports of anti-Americanism began to erode the American public support of South Korea.

Some hasty commentators already began floating the possibility of the withdrawal of U.S. forces. Parents of U.S. soldiers stationed in South Korea as well as other ordinary Americans may soon start writing letters to their congressmen demanding the withdrawal of the U.S. troops. When anti-American sentiment was allowed to escalate in the Philippines a decade ago, it may be noted that the U.S. actually withdrew its troops from the Philippines. It is worrisome to hear South Korean leaders publicly mention the reduction, if not the withdrawal, of the U.S. forces as a possibility. A January poll by the local newspaper here in the U.S. revealed that about half of the respondents favored a U.S. troop pullout from Korea.

If anti-American sentiment continues unabated, it will generate the impression of an unstable business environment that will eventually lead to lower foreign direct investment and sales of stocks and bonds in South Korea's financial markets, thus lowering stock prices, raising interest rates, increasing unemployment and slowing economic growth in South Korea. If the anti-Americanism is allowed to escalate, it will encourage South Korea's large businesses to consider relocating much of their operations to other nations, especially the U.S., and have an adverse impact on exports. This will further lower the country's economic growth and increase unemployment.

The North Korean economy will also suffer from the South's anti-Americanism. The North's movement toward a market economy will slow to a virtual halt. The North's settlement of the issue of Japan's occupation of the Korean peninsula, that ended in 1945, will be delayed indefinitely, thus denying financial assistance from Tokyo that Pyongyang may have counted on. The sunshine policy will also be affected because the South will not be able to continue the $110 million it has been spending each year for the North since 1995. The trade between the two Koreas, which grew from $18.7 million in 1989 to over $400 million in recent years, will also be a casualty.

To some extent, the damage may already have been done. To minimize further damages, political leaders need to make conscientious efforts to redirect the national energy toward solving the real issue, which is the potential threat from the North. For all issues pending between Korea and the U.S., solutions must be found with rational thinking, not with emotional behavior.

A Beautiful Mind

University of South Alabama
01/22/03
By Chang Se-moon

"A Beautiful Mind," a movie depicting the life of mathematician John F. Nash, Jr, won an Oscar for best picture in 2002. Nash, who was born on June 13, 1928 in West Virginia, was diagnosed with paranoid schizophrenia, but overcame this illness and won the Nobel Prize in economics in 1994 for his development of "game theory." "Game" in this sense is a tool used to analyze the strategic behavior of decision-makers, taking into account each "players" interdependence.

A game requires three pieces of information: players (that is, decision-makers) of the game, strategies (that is, alternative actions) available to each player, and the payoff (that is, rewards of conflict) received by each player for each combination of strategies that are chosen by the players.

Clearly, a game is in progress over the North Korea's nuclear weapons program. The players are North Korea, South Korea, America and the world community. Strategies include threat of development and use of nuclear weapons, and measures against the threat. Payoffs may include a nuclear-free Korean peninsula, peaceful co-existence if not movement toward unification, and world peace, but the payoffs as far as the North is concerned are not so clear.

The best possible solution in which no player wants to change his or her choice of strategy when other players' choices are revealed is called the "Nash equilibrium." The Nash equilibrium of the nuclear game with the North is far from clear. What is important is that game theory assumes that each player acts rationally and each player recognizes that their competitors also act rationally. For instance, competing businesses pursue maximum profits by undertaking strategies that do not include irrational behavior such as driving competitors out of business or mutual destruction.

There are two problems with the nuclear game with the North: there is no clear understanding of what constitutes rational behavior by North Korean leaders, and more importantly, the North Korea's payoff or true objectives are not known.

There is no doubt that North Korean leaders are rational in their own way. We simply do not know exactly what rationality this entails. In 1993, for example, the North shocked the world by saying it would quit the Nuclear Non-Proliferation Treaty, as it did in January of this year. In 1994, the North signed an agreement to eventually dismantle its nuclear weapons program in exchange for international aid to build two power-producing nuclear reactors. So far so good.

In August 1998, however, the North fired a multistage rocket that flew over Japan and landed in the Pacific Ocean, proving the North can strike any part of Japan's territory. In September 1999, the North pledged to freeze testing of long-range missiles and the then President Clinton eased economic sanctions against the North, which was followed by a $4.6 billion contract to build two light-water nuclear reactors in the North in December 1999. So far, maybe ok.

In July 2000, the North renewed its threat to restart its nuclear program if Washington did not compensate for the loss of electricity caused by delays in building nuclear power plants. In June 2001, the North warned it would reconsider its moratorium on missile tests if the Bush administration did not normalize relations, and is believed to have conducted an engine test of the Taepodong-1 missile. On October 16, 2002, the U.S. officials publicly revealed discovery of an on-going North's nuclear weapons program, violating the 1994 agreement. From then on, it has all been downhill.

On Nov. 11, the U.S., Japan and South Korea decided to halt oil supplies to North Korea promised under the 1994 deal. On December 21, the North began removing monitoring seals and cameras from its nuclear facilities. On January 10 this year, the North announced that it would, again, withdraw from the Nuclear Non-proliferation Treaty, but at the same time sent Han Song-ryol, the North Korean deputy permanent representative to the United Nations, and Mun Jong-chol, first secretary to the United Nations, to meet New Mexico Governor, Bill Richardson, for discussion.

Clearly, the South and the U.S. should have had a better understanding of the North's objectives and its pattern of behavior by identifying what constitutes a rational behavior by the North leaders. If there were a better understanding, all recent announcements and developments would have been predictable rather than emerging as surprises.

The South and the U.S. do not even know exactly what the North's payoff or objectives are. A casual understanding is that the North is trying to force the U.S. to a negotiating table for greater economic benefits. This may be a simplistic view. The North Korean leaders probably have known the pitfalls of the nuclear game, which include no more aid from the European Union, no Australian embassy, reduced assistance from the South, no money from the post-WWII settlement with Japan, and possible economic sanctions. What objectives of the North could have been so desperate to outweigh all these economic costs?

Possibilities are numerous and include a cover-up of rampant corruption by the North leaders, concession to the military opposing the continuing dialogue with the South and the world, concerns over civil unrest and revolt at home, fear of the U.S. attack on the North after the confrontation with Iraq is over, driving a wedge between the South and the U.S., the North's desire to force the U.S. attention to a bargaining table for greater economic benefits, and what have you. It is also possible that whatever the initial North Korean initial objectives may have been, they may have miscalculated responses from the South, the U.S., and the world community.

The point is that if the South and the U.S. spent more time studying the true objectives of the North and the behavioral pattern of the North leaders, all recent developments could have been anticipated and appropriate counter-measures could have been developed to keep the developments from reaching a crisis status. Even if it is a little late, I feel it is very important for the South and the U.S. to do an in-depth research on the North Korean objectives and behavioral patterns as soon as possible so that future damage from what appears to be irrational moves from the North can be minimized. The Nash equilibrium always exists, although the Nash equilibrium with research in advance would be preferred to one without the research.

It is about time for the South to develop its own beautiful mind that can enable us to understand the North's objectives and predict the behavioral pattern of the North leaders so that potential crises can be prevented before they become a full-blown crisis.

Making Money From the Stock Market

By Chang Se-moon
University of South Alabama
01/03/03

Everybody wants to make money from the stock market. All one has to do is to buy stocks at a low price and sell them at a higher price. Well, it's not that easy.

The stock market has a long history. Companies were first incorporated in the second half of the 16th century in England, and soon afterwards, markets for assignable shares of companies began to emerge. Since that time, stock prices rose and fell numerous times, with the October 1929 crash being the most memorable fall.

Stock prices in general experienced a steady increase since the 1970s and hit an all-time high in early 2000. Stock prices have gone through a tough time since then. From early 2000, for instance, the tech-dominated NASDAQ fell by 78 percent and even the conservative Dow Jones index fell by about 30 percent to the current mid-8000 level. If you think this is a low price, think about Federal Reserve Chairman Greenspan who warned of "irrational exuberance" when the Dow was only around 6000.

Some predict a 10-to-15 percent increase in stock prices during 2003, claiming that when money market rates are 1 percent and the yield on 10-year Treasury bonds is 4 percent, it doesn't take a lot for stocks to outperform fixed-income alternatives. Others predict a 2 to 3 percent decrease in stock prices during 2003. Remember that the U.S. economy is supposed to grow at an annual rate of 2.5 to 3 percent with moderate inflation next year.

Stock prices, like all other prices, are determined by supply and demand. The supply of the number of shares of a stock is constant at any given time. This means that all we have to do is to find out what determines the demand for a stock in order for us to correctly predict future stock prices and make money.

My MBA students and I have reviewed a large number of studies to identify the determinants of stock prices. Some factors have a short-term impact while others have a long-term impact. Some are hard facts while others are soft facts. Further, many determinants are mutually related. With this caveat, all determinants are grouped into the following: corporate specific, overall economic, product market, stock transaction specific, global, political, and psychological.

Corporate-specific determinants of stock prices are perhaps most familiar to investors, and include corporate earnings, expected dividend payouts, expected growth rate of dividends, fluctuations in earnings and dividends, innovation potentials, size of firms, degree of transparency in corporate governance, news of acquisitions or mergers, news of higher or lower profits, time lag of the news, and insider information & its manipulation.

Overall economic determinants are also familiar to many investors, and include money supply, inflation, expected inflation rates, market rates of interest, market-wide liquidity, government tax & expenditures policy, indicators of long-run economic growth, changes in the distribution of wealth within an economy, change in tastes and preferences in health, computers, etc., change in the number of consumers, corporate tax rates, and the consumer confidence index.

Although less familiar to investors, the position of a certain company's products in markets has a direct impact on the price of that company's stock. Determinants relating to the product market include changes in the prices of complements and substitute goods, movements of product price and all the determinants that affect those movements, news of new products and the accuracy of the news.

Stock transaction-specific determinants include personal interests of portfolio managers, strategies of stock market traders, degree of risk aversion of stock fund managers, expectations of stock fund managers, availability of the Web as a marketplace, and relative transaction costs.

In today's global age, several global factors play a prominent role in determining stock prices. These factors include location of stock exchanges and mentality differences among countries. German students have told me that German stock markets tend to be more conservative. Global factors also include all those that affect export prospects of products and, yes, exchange rates that alone have a list of determinants of their own that may be just as long as the list of determinants of stock prices.

Ever since the 9-11 terrorist attack on New York's World Trade Center, socio-political factors also became important in influencing stock prices. Socio-political factors include not only past and future terrorist attacks and their news but also war fears that may eventually include North Korea's behavior related to its nuclear policy.

Finally, there are psychological factors such as what is known as the herd effect, indicating an overreaction by buyers to news that has the potential to affect stock prices. The most important psychological factor may well be how individuals use all the above factors to determine their mindsets on buying or selling of individual stocks.

If there is anyone who still believes that he or she can make money from the stock market, I would like to suggest that person to consider Professor Malkiel's random walk theory, according to which a monkey throwing a dart has an equal chance of picking good stocks as those who are known to be stock market experts.

I do not mean to discourage investors from investing in the stock market. I simply want to stress the danger of trying to make money through frequent purchases and sales of stocks. It may be important to keep in mind the findings of some studies, which concluded that, over a long haul, companies that pay dividends outperform companies that do not. From January through November of 2002, the 351 stocks in the Standard & Poor's 500 index that paid dividends fell 8 percent on average during 2002. During the same period, the remaining 149 stocks that did not pay dividends lost 26 percent of their value. Furthermore, many large investors, such as growth and income fund managers, are not allowed to invest in companies that do not pay dividends.

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