Recently I had a chance to visit Seoul and see first hand what may be happening. Given the fact that I was there not quite three days, I am quick to state that my impressions are based on observations that are insufficient, incomplete and quite probably inaccurate in many ways. Nonetheless, I was able to meet a wide range of people from journalists and economic analysts to entrepreneurs, middle managers and senior executives. Again, if I had more time to meet more people my observations would be different but here are a few tentative conclusions:
Superficially Seoul seems better than ever. The traffic, while busy, is hardly ever jammed and it is easy to get a taxi and be anywhere in about half the time. Most prices have not greatly changed since December so upon exchanging yen or dollars into won, Korea is a shopper's paradise. The restaurants are often busy but you don't have to make reservations as there is always room to get in. But, of course, only the most cynical can find glee in these circumstances.
From when the won collapsed in December, the brunt of the economic downturn will take up to three months for it to bear its full impact on the average citizen. It was very much like standing on a tall hill and watching an approaching giant tsunami. While I was unable to get a good feel for the current rate of inflation, it was definitely escalating with sudden surges in prices such as the 60% increase in gasoline. The consumer appeared to have been temporarily buffered by the large volume of goods available that were manufactured during the times of a stronger won or from materials when the won had twice the purchasing power. Furthermore, many retailers were slashing prices as much as 50% as a means to move inventory while the consumer still has strong purchasing power.
Productivity had temporarily dropped as people worried often to the point of inaction in making tough and politically sensitive business decisions knowing that with the upcoming changes in the labor law, many - perhaps as much as a third - of the white collar force will be deemed redundant. Without a safety net other than the goodwill of one's relatives who are likely to be facing similar pressures, unemployment did not mean going out on the dole. It meant going without income with incredibly slim chances of finding employment else where.
The obvious question is how much of a transfer cost will be made by business to the rest of society with the upcoming major lay offs. Compared to my days as a Peace Corps Volunteer of 20 years ago, Korea is a much more crime free as more and more people had been able to become more prosperous. I expect there will soon be a temporary, severe class division between those with and those without jobs/reliable income. I heard speculations that the economic correction will take between 18 and 24 months. But to get society whole again, I would think the time to repair the social damage will lag several months - perhaps another year - after the general economic recovery is achieved.
Yet within this pathos there is also inspiration for the outside observer. I heard that the technical and private secondary school business was booming. As people were losing their jobs or facing the likelihood of the same, many were returning to school to upgrade their skills. It is to the credit of the Korean people that this practical, long-term value is so strong.
An interesting observation was made by a friend who noted that there is likely to be a flare up among the citizenry who was donating their gold for chits to help finance the national balance of payments. He noted that the Korean price of gold is significantly higher than the global price of bullion due to taxes and service charges. In addition, Korea is said to lack the capacity to smelt that large quantity of varying qualities of gold and may have to have this done abroad which will only subtract to the value of eventual reimbursement at the then current value of gold bullion. There may be widespread shock and disappointment at that time.
Less apparent has been the crisis of financing. Like many Asian firms, most Korean firms have lived month to month on short-term financing. I heard interest rates as high as 30% but the more common rate appears to be about 20%. Still this makes it incredibly difficult to do business especially when raw materials' costs begin to soar as a result of a weak won.
While much has been made over the past decade of the Korean economic miracle, I have always felt that the Koreans have never been given enough credit for their parallel political development. In less than a century they have moved from one of the most regressive feudal systems, to slavery of being a colony to varying dictatorships, and yet onward to a true democracy. While one can always rightfully make disparaging remarks about the antics of Korean politicians, the same can be said just about anywhere. Everyone I met, both foreign and Korean, was cautiously optimistic that newly-elected Kim Dae Jung will provide the right kind of leadership. He may after all be the right man given his lack of connections with the establishment and traditional support of the unions. Nonetheless, I anticipate a potentially bloody test strike by radical union leaders such as in the automotive industry. Still I think Kim Dae-Jung, a politician well known to do what he thinks is right - often while reneging on election campaign promises - will ultimately hang tough against the unions for sake of the nation. So far he has said all the right things and proactively started taking charge in a very commendable manner.
While much of the above seems fairly gloomy, I remain very optimistic about Korea in the mid- to long-term. These are a remarkably tough, Confucian people who have so far made all the right yet difficult decisions. Perhaps this is the pain of a hangover following euphoric economic growth. I can also see a truly internationalized Korea as a result of this trauma. There are some Koreans who feel that there is a need to return to the old days of a strong leader forcing people to consume more moderately. The problem, in my opinion, was not caused by consumption of the common people but by cronies at the highest levels of society. Cronies by their very nature are very exclusive. While such leaders spoke of internationalism out of one corner of their mouths they were quick to ensure that oligarchical super advantages were retained among themselves. Just as political dictatorship could not practically be maintained within Korea's overall development, the current economic scheme was destined to collapse. The resulting restructure will be painful for all of us who have an interest in Korea. Obviously, once again, it is the common Korean citizen who will unfairly pay the biggest personal sacrifices. Yet I expect as a result of this economic renewal that there will be a more level playing field with a more equal distribution of wealth and opportunity for the common Korean.
This is a diary note to myself as much as a letter to you all. Should anyone have anything to comment or to disagree with what I have written, I sincerely welcome them to respond to me at coynerhm@gol.com since no one person can take all of this in accurately.
- Tom Coyner
The above article is from the
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Updated January 27, 1998