The Korean Broadcasting System invited me to Seoul to give a nationally televised speech on how South Korea can re-charge its economy. Just forty years ago, South Korea was as poor as Haiti. Now companies like Samsung lead the world. They call it the “Miracle on the Han River.” But can it continue? Here’a quick clip of the speech, on an American Idol-like stage. During my visit, the North was threatening nuclear war, so there was tension in the air. It’s not easy living miles from a dictator who will threaten to attack simply because he’s upset about a Seth Rogen/James Franco comedy.
Here’s the text of the speech:
When I was a teenager, my father took us to a Chinese restaurant. My father had fought in World War II on the first navy ship that liberated Shanghai from the Japanese. At the restaurant, we all ordered fancy drinks. They came with little paper umbrellas poking out from the foam. I’ll never forget the waiter placing my non-alcoholic frothy drink in front of me and saying: we got these little umbrellas from South Korea. To us, South Korea was a faraway place, made up of poor people who had been invaded hundreds of times and had just figured out how to fold paper and then glue it to little sticks.
Today South Korea is a place that keeps Apple Computer executives up all night worried about new technological leaps; embarrasses Sony in international competition; excites South American soap opera fans with its Queen of Housewives, and sparks teenagers around the world to hop up and run to the dance floor to K-pop.
The Miracle on the Han River is not just a miracle of economic growth. It is a testimony to a national character, marked by pride and a devotion to education. And let us remember, Korea did not start with much other than its people. Are there massive bubbling oil wells? Are there vast mines of gold?
Many leaders blame the earth for their country’s problems and complain, “We do not have natural resources.” Israel’s first female prime minister, Golda Meir frequently scoffed at this problem, commenting that it was hard to forgive Moses for dragging the Israelites 40 years in the desert only to bring them to the one place in the Middle East without oil. Historians and even professional economists often get hung up on natural resource worries. When Europeans colonized the Americas, the Caribbean looked far more fertile than North America, with Cuba’s per capita GDP at least fifty percent higher than the American colonies. Voltaire could not understand why France and Britain bothered to clash over Canada in the 1750s. Canada was just “acres of snow…inhabited by barbarians, bears and beavers.” Some experts foolishly think that location determines economic health: “Australia is too far away!” “Look, Venezuela has oil!” Yet Australia is clearly a much wealthier place than corrupt Venezuela, even though it was settled by exiled criminals. What matters most to an economy? Attitude, not latitude. Location is an excuse. After hearing too many excuses from the Soviet Union, Ronald Reagan said there were only four things wrong with Soviet agriculture: winter, spring, summer and fall. Russia had rich soil and precious metals. In comparison, Hong Kong was a pile of rocks! The Netherlands was a swamp. But the people there were determined to climb higher than the rocks and out of the swamps.
So how can Korea move forward in an era of slower growth, and at a time when many young people feel that Korean economic success has come at the price of stress and hyper-competition? In my brief talk, I will try to accomplish 2 goals: First, set forth Korea’s key economic challenges. Second, suggest promising but controversial solutions. Some of my thoughts come from a new book that will be published in 2016 called The Shattering of Nations: How Rich Nations Fail and How to Stop It.
As an economist, I can find few cases that can compare to the Miracle on the Han River, which sent GDP catapulting at a 9% growth rate starting in the 1970s. In Germany they refer to the wirtschaftswunder. But that wonder came after World War II in a defeated country that already had been economically powerful. Germany already had steel mills and companies like Daimler Benz. They just had to figure out how to resurrect them. South Korea began more humbly. It had been occupied from 1910 to 1945; fought a war in the 1950s, and shared a border with a threatening dictatorship to the north.
With land reform, liberalization and aggressive exports, the chaebols reformed and in many sectors those firms conquered. The chairman of Samsung knew it would be difficult and once convened his staff to tell them, “Change everything but your wife and kids.” So now Korea ranks near the top in per capita GDP and exports. But the miracle has been wearing off. Inevitably 9% GDP rates slump to 8 then 6, then much lower. GDP growth looks less like Superman and more like working-man.
Korea shares many of the challenges that confront other rich, mature countries. First, the demographics. As countries get richer, people have fewer children. Perhaps it’s more fun for adult couples to travel on vacation than to chase toddlers around a cramped apartment. Perhaps Korean parents feel that education costs them so much money—especially the supplementary hakwon – that they cannot afford more children. Regardless, Korea is not producing enough young workers to support future retirees.
Second, as nations get richer, they rely less on manufacturing and more on services. While Korea’s culture exports inspire awe, and inspired billions of people around the world to do Psy’s “Giddy-up” Gangnam Style” dance in 2012, Korea does not lead the world in finance or healthcare.
Third, Korea’s financial and moral culture might be standing in the way of entrepreneurs. To put it bluntly, Confucian culture prioritizes certainty above risk-taking and creates a stigma over business failure. Surveys show that Korean parents would rather their sons accept a stable, low-paying job with a chaebol than take the risk of starting a company and becoming, god forbid, the next Steve Jobs. At Harvard, I won the teaching prize in economics. Nonetheless, I never scorned those individuals who dropped out of Harvard.
Especially those Harvard “loser” dropouts with names like Bill Gates and Mark Zuckerberg. Now, I am not here to attack Confucius, who like Aristotle, was one of the great thinkers in history. But as the Japanese learned during the Meiji Revolution in the 1800s, Confucianism should not be used an as excuse from challenging hierarchies.
So what solutions can I suggest?
On demographics: Some governments like Singapore and Russia are trying to convince young couples to spend, frankly, more time in bed, with everything from free motel visits to more time off for “whoopee.” I cannot think of anything less sexy than a government minister dimming the lights and turning up Frank Sinatra music. It does not inspire blissful evenings; but it does probably lead to nightmares.
Unless Koreans suddenly decide that they want to have more babies, they must turn in a different direction. Here are a few alternatives: First, consider immigration. While this is possible, the Korean language is ranked among the most difficult for others to learn, and Korea does not have a strong tradition of inviting immigrants. Second, but more promising, Korean women could participate more in the workplace. Right now, just over 60% of middle-aged women work, compared with over 70% for the U.S., Sweden and Germany.
Koreans spend so much of their income—perhaps 20 percent on extra, after-school education — that it creates an enormous burden for families and probably diminishes the birth rate. Families already pay tax dollars to support public schools. But in the twenty-first century, do they need government-run schools and their bureaucracies? In a more heterogeneous country like the U.S., public schools played an important historical role, teaching millions of immigrants from Italy, Russia, and Mexico how to “act like Americans,” learn patriotic songs, and learn how to read English. But Korea is much more homogeneous. Do Korean children need government-run schools to turn them into Koreans? So here is a controversial proposal: I would propose that the Korean government give back to parents a voucher or cash coupon that parents can use to purchase elementary and high school education for their children. Parents would have the freedom to choose public or private schools, and the schools would compete by offering the best teachers and learning techniques. I would expect that the total cost to parents would be far less than the current system where parents pay the combined cost of taxes to support public schools plus the cost of hakwon. And maybe the stressed-out kids would have a little time to exhale or exercise their bodies in between studying.
A more dynamic education system would develop new tools for children. Bureaucracies are usually slow to adapt. Here’s an example: I recently invented a new way to present numbers to children called the Math Arrow. The matrix lines up numbers 0-100 in a special zig-zag pattern. Notice that every number horizontally across from the other adds to 100. So that when a child learns the number 5, he automatically sees the number 95. Now, watch this short video in which 5-year olds in Harlem are counting by 8s using the Math Arrow. When they successfully get the cartoon character “Kyle the Kangaroo” around the Math Arrow, they hug each other! Imagine inspiring poor kids from Harlem to cheer about adding numbers.[Harlem video]
Even though university studies show that the Math Arrow raises test scores, we find that bureaucratic government schools are less likely to adopt new ideas than entrepreneurial schools.
Beyond demographics and education, Korea must do more to encourage small businesses. That is not easy. Good entrepreneurs know that they will sometimes fail. There’s a saying in Silicon Valley: “fail fast and fail big.” By failing fast you learn what you have done wrong and you can try again. Korean financial institutions often require an entrepreneur to pay a heavy personal price if he does not pay back on an investment. Plans do not always work out.
Mike Tyson said that “Everyone’s got a strategy until they get punched in the mouth.” Korea’s bankruptcy laws should be reformed so that entrepreneurs have a better chance at ultimately winning, which would create more jobs for others.
To thrive in the years ahead, Korea must show as much strength in services as it does in flat screen tvs and refrigerators. Clearly, hallyu has been a magnificent success. But can it conquer the English-speaking world? Hallyu raises practical questions about diverse languages and culture. I’ll give an example. As one of the original investors in the Broadway hit Jersey Boys, I am impressed by how skillfully Korea has developed its own Broadway-quality musicals. A new Broadway-bound musical called Glory Ride tells the inspiring story of a heroic athlete who saves children from the Fascists. I hope Glory Ride finds a home in a theater in Seoul. But in this multicultural world, here’s a question that the producers must grapple with: Should we cast a famous Korean actor as the hero? Or an American like Jake Gyllenhaal and teach him Korean? Or should Jake Gyllenhaal sing in English on a stage in Seoul?
These questions could be answered – and the obstacles to even greater Korean economic success — could be overcome through an earlier and more focused study of the English language. I am well aware that during the Japanese occupation, Koreans were punished for using the Korean language. Still, I think Korea – if it intends to surpass other major economies – should insist that children learn English at a very young age. Imagine how far-flung and powerful Korea’s economy, software, finance and entertainment industries could be if firms could easily hire young Korean workers who were also fluent in English? I understand that most students already do study English at some point, but not soon enough for most of them to show true mastery. There are precedents for extraordinary leaps in language. Here are three: In the 1920s, Mustafa Ataturk, the father of the Turkish Republic, encouraged modern Turkish to replace Arabic. In Israel, the pioneers in the early twentieth century personally spoke German, Yiddish, Russian and French, but decided that the new State of Israel should adopt modern Hebrew. In Vietnam, French colonialists taught the Vietnamese to write in European/Roman letters. Few Turks, Israelis or Vietnamese today think these were bad choices.
Early learning of a second language would enhance, not diminish Korean national pride. Korea’s young people would become known around the world, not just as great engineers and hard-working scientists, but also as great conversationalists.
Let me conclude by reminding you that in one generation, Korea jumped from paper umbrellas to titanium, space-age materials. They say “Rome was not built in a day.” But compared to Koreans, Romans were lazy, slow-learners. Now, Korea faces first-world problems. I am sure it will have the courage to embrace first-rate solutions. We can all raise a glass and toast to Korea, without the little paper umbrellas you’ve left so far behind.