Tue, Feb 05, 2002 page19

• Bono, Bill Gates ought to travelto South Korea

  • By William Pesek Jr / BLOOMBERG
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  If you want to see a good old-fashioned labor union protest, head over here to South Korea's Finance Ministry building. Across the road, malcontents are gathered with signs, sashes and even music, as they often are.

  It's not hard to figure out why labor groups are miffed: The government is working to change life as this nation of 47 million knows it. Making South Korea a bigger force in the global economy will require lots of restructuring, and unionized workers will be hit hard. They're fighting change, pitting them against the Kim administration, which is pushing for it.

  That tension makes South Korea a fascinating test case of the pros and cons of opening up to the global economy. "I'm sure Korea will present a very interesting example of the costs and benefits of globalization," says Kang Bong-kyun, former finance minister and current president of Korea Development Institute, a state-run think tank.

  It only seems as though New York City has a monopoly on the globalization debate these days. That's where billionaire Bill Gates, rock star Bono, CEOs galore and thousands of protesters converged last weekend for the World Economic Forum meeting.

  Everyone might want to come to Seoul for a hands-on look at the forces they're pondering. Pro-globalizers love South Korea because it stayed open after the 1997 Asian crisis and it's prospering. The anti-globalization crowd also claims South Korea as its own, pointing to the social and political tensions bubbling up here. That's why the legacy of Kim Dae-jung's presidency is so pivotal for the entire global economy.

  South Korea is a nation at the epicenter of the open-economy debate.

  Like many Asian nations in recent decades, South Korea exposed itself to the whims of capital markets. Money flowed in as profit-hungry investors and companies rushed to get a leg up in one of Asia's budding tigers. The money helped Seoul build vital infrastructure and educational facilities. It also provided working capital for businesses and asset markets. Living standards soared.

  That all changed in 1997 and 1998, when Asia's currency crisis shoulder-checked South Korea's economy. To the surprise of many, South Korea resisted the urge to go the Malaysia route and pull back from the global economy. Many Koreans wanted to do just that.

  Kim's controversial decision won him a special place in the hearts of free-market advocates around the globe. To them, South Korea stayed the course; therefore, globalization works.

  "Of the crisis-affected countries, we usually put Korea at the top of the list," says Paul Gruenwald, the IMF's representative in South Korea.

  Yet that notion will be put to a test this year. The Kim administration leaves office early next year and the president wants to bolster his credentials as an economic reformer. That means chipping away at the most stubborn vestiges of Korea Inc, including organized labor's grip on the nation.

  The government recently got a taste of what's ahead: A public hearing on the privatization of Korea Electric Power Corp was brought to a halt by labor protests. Labor Ministry officials have been warning that 2002 will be a year of intense friction between workers and management. Companies need to cut jobs to become more profitable and competitive around the globe.

  Yet if the South Korean economy is to attract the foreign capital it needs, Seoul must make progress on selling such marquee assets as Daewoo Motor Co, Hynix Semiconductor Inc and Hyundai Group. Until it does, markets will worry that those big, shadowy business groups, known as chaebol, and militant labor unions will continue to dominate Asia's third-largest economy.

  In this way, the global economy also has much riding on Kim's success. Until 1997, much was going right in here. After the crisis, most things that could go wrong did. Now, South Korea's back on track and poised to grow 5 percent this year.

  If South Korea stays the course and living standards continue rising, pro-globalization forces will have their argument to keep markets open. If not, the trends toward market opening could slow down. That's not because protesters and activists want them to, but because leaders of key nations may be forced to close their economies, making them less vulnerable to the whims of markets.

  The good news is that Kim's government remains committed to the global economy. If ever there were a time for South Korea's emergence on the world stage, this is it. South Korea, more than ever, is thinking about its role in the world and what it can do to contribute to Asia and the global economy.

  This is hardly the first time South Korea has grappled with such questions. But tectonic shifts reshaping Asia also are forcing the issue. 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. South Korea's importance is rising, both economically and geopolitically.

  It's happening slowly, but it's occurring. South Korea's rise has much to do with its economy.

  "It seems to me Korea is now struggling with the world's advanced economies," says Eric Berthelemy, chief executive officer of Societe Generale in Seoul. In other words, South Korea is no longer a developing economy.
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