Seeing that his passenger is a foreigner, taxi driver Lee Hong-soo asks what's becoming a common question here: "Which do you like better -- South Korea, China or Japan?" It's something a visitor gets asked over and over in South Korea. It used to be average people and government officials in South Korea asked what you thought of their country -- its people, food, weather and mountains. These days the curiosity is over its role in Asia, if not the world.
If ever there were a time for South Korea to think about its emergence on the world stage, this is it. More than ever, Seoul is thinking about its place in world and what it can do to contribute to the global economy. This is hardly the first time the nation has grappled with such questions. But tectonic shifts taking place in Asia also are forcing the issue.
"We've come a long way since the Asian crisis," Kim Yong-duk, South Korea's deputy finance minister, tells Bloomberg News. "Now, the question is how far Korea has come, where it's going and where it stands in the world."
Japan is in perpetual recession. China, meanwhile, will be a dominant player someday, but for now it's a Communist nation without an international currency or financial transparency.
Against that backdrop, South Korea's importance is rising, both economically and geopolitically. It's happening slowly, but it's occurring nonetheless.
South Korea's rise has much to do with its economy, which is expected to grow 5.7 percent this year. No longer is the country grappling with problems associated with an emerging-market nation; rather, its issues are shared by the 30 members of the Organization for Economic Cooperation and Development.
Rather than focusing on hardware issues, such as financial systems, capital flows and infrastructure, South Korea is now grappling with software concerns -- demographic trends, pension-fund reform and restructuring health care. While still struggling, the nation is now doing so in the same economic neighborhood as Japan and, more and more, Europe and the US.
In this way, South Korea may be the closest thing the emerging-economy world has to a model of reform. To be sure, the nation has a long way to go to raise per-capita income and strengthen its economy. But in the four years since South Korean officials began restructuring the economy, they've done far more right than their peers.
The last time developed-world policy makers felt they had a genuine success story was Mexico in the mid-1990s. When Asia-Pacific leaders met in Vancouver in 1997 -- at the height of the Asian crisis -- then-Mexican President Ernesto Zedillo found himself holding court. It was his own experience with crisis in 1994 that Asian leaders wanted to hear about.
South Korea, however, has offered a much better example of how to rebuild an economy. "When I travel, I get lots of questions about how we handled our challenges and lots of suggestions that we should share them with other countries," says Kim, the deputy finance minister.
If there's a key to South Korea's 12-step program for economic revival, it's owning up to the underlying problems. While nations such as Japan remain in denial about the magnitude of their challenges, South Korea four years ago came to grips with its own.
After South Korea went into freefall, President Kim Dae-jung came under extreme pressure to close the economy. Everyone from taxi drivers to chief executives blamed fleeing foreign investors for crashing their financial system.
It wasn't a popular decision, but Kim's team fought the impulse to erect new walls around South Korea. In doing so, it took important steps away from the "Japan Inc" model that once was the envy of the world.
Japan's model was the blueprint followed by most of Asia -- South Korea in particular. Its mix of active government planning, aggressive exporting and close links among politicians, companies and financial institutions was the standard by which Asia measured itself.
In the early 1990s, Japan Inc. lost its way. By 1997, the same was true with much of Asia. Overcapacity swept a region weighed down by large public and private debt loads. Fragile banking systems, weak domestic demand and low interest rates weren't doing much good. Those Japan-like structural problems left little economies limping along.
Seoul -- and the rest of Asia -- realized they needed to shield themselves from "Japan disease." If Japan's post-war success offered a blueprint for the rest of Asia, its experience since 1990 provides an example of how not to run an economy.
There was just no way South Korea could keep doing the same things anymore -- especially after 1997 and 1998. Changing course was the only way.
South Korea stepped up efforts to reinvent itself. That meant relying less on electronics and semiconductor exports and stimulating growth from within. While neighbors were happy to remain state-of-the-art export machines, South Korea turned to looser fiscal and monetary policy.
The result was a boom in so-called Old Economy sectors, such as homes and ships. Complementing the domestic-growth campaign was a healthy increase in South Korean auto sales around the globe, especially to the US.
Seoul also whittled away at the Japan-style business practices dominating its economy. Reforming the nation's huge business groups, known as chaebol, was goal one. Seoul ordered them to reduce debt, sell businesses and increase transparency.
While much remains to be done, the government is steadily ending business as usual here.
South Korea's biggest success, however, has been staying open. Between 1962 and 1997, the nation welcomed US$23 billion of foreign direct investment. In the four years after accepting a US$58 billion IMF bailout, investors spent US$53 billion on stakes in South Korean companies.
The recent sale of parts of Daewoo Motor Corp to General Motors Corp was another reminder that reforms are unfolding apace. Then there's Lehman Brothers Holdings Inc's desire to invest US$250 million in Woori Finance Holdings Co, a company Seoul created during the Asian crisis to clean up bad loans at South Korea's second-largest bank.
Other deals -- such as those aimed at selling off Hynix Semiconductor Inc -- haven't gone as well. Hynix's board vetoed a US$3 billion bid by US rival Micron Technology Inc. The goods news is that Hynix's creditors and the government, convinced the chipmaker can't survive alone, are pushing ever harder to break up and sell the company.
Yes, South Korea has a long way to go to reduce the government's role in the economy. Reform, after all, isn't something that happens overnight. It's a process that takes time.
But compared with Japan, South Korea is a model of reform. Eleven years into its slump, Japan is changing at a glacial pace, if it's changing at all. A year into office, Prime Minister Junichiro Koizumi, Japan's self-styled reformer, has failed to improve things in Asia's biggest economy.
Instead of imposing genuine competition on corporate Japan, policy makers again have turned to a weaker yen. It's here where Korea Inc.'s success can teach Japan a thing or two. Reform is never easy, but when it's implemented, good things can come of it.
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