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사진Korean Innovation: Any lesson for latecomers?

Korea has risen from chronic poverty to be one of the most dynamic industrial economies, positioning itself as a global player in technology and innovation by establishing world prominence in such areas as semiconductor, automobiles, telecommunications, shipbuilding, etc. The Korean innovation attracts more interests as it represents a success accomplished under severe geo-political uncertainty and resource constraints in a unique cultural setting. While the Korean growth is widely praised as a model for emulation among latecomers, concerns are also growing that the Korean growth would soon reach a plateau unless it transforms itself from being a fast follower into an innovator.

Government-led industrialization

Before industrialization, Korea was a very poor agrarian economy with strong Confucian traditions which are characterized by hierarchical collectivism, loyalty toward authority, emphasis on education and such ethical norms as diligence, frugality, and discipline. Korea had inherited a very poor industrial base from the past, which was almost totally destroyed during the Korea war (1950-53). As such, industrialization was way beyond the capacity of the private sectors in the early 1960s as they had neither technology nor capital. The government had to step in even from the stages of acquiring technology and capital. Even though FDI (foreign direct investment) was considered most effective as a means for developing countries to acquire production technologies, management skills, and other business knowhow, the Korean government took a very restrictive policy toward FDI, such as restrictions on ownership and repatriation of profits, technology transfer, and export requirements. Instead of relying on FDI, the government brought in large-scale foreign loans and allocated them to finance the development of strategic industries, which led to massive importation of foreign capital goods and turnkey plants. Private industries acquired necessary technologies by reverse engineering the imported machines or through technical training as part of turnkey plant importation or through learning by implementing the imported technologies. In the case of light industries, such as shoes, clothing, textiles, and some intermediate goods for import substitution as well as export, the major sources of technological learning were OEM (original equipment manufacturing) production arrangements. Korean firms benefited most from such arrangements because they offered opportunities to work with foreign buyers who provided everything from product designs and materials to quality control at the end of the process. This was especially so in the case of garment and electronic industries. This was the stage where Korea pursued industrialization by simply imitating and assimilating foreign technologies that passed the test of market.

Fast follower strategy

The growth and structural changes of the Korean economy were accompanied by increased level of technological requirements that could not be met by the imported mature technologies. The government responded to the changes by shifting the policy focus from technology learning to technology development, and launched the National R&D Program in 1982, the first national program designed for industrial technology development, while at the same time, taking a series of measures to promote private industrial R&D, including tax and fiscal incentives. These policy actions were further reinforced in the 1990s by the implementation of a series of large scale mission-oriented programs aimed at developing strategic technologies for structural transformation of the Korean economy. Private industries joined the move by switching their technology strategy from imitating and assimilating mature foreign technologies to in-house R&D drawing upon new emerging foreign technologies. During this period (1980s-2000), R&D expenditures soared from 0.5% of GDP to more than 3% of GDP, with the private share increasing to 80% around the end of the 1990s.

This period witnessed remarkable technological achievements that include DRAM, hepatitis B vaccine, NMRI (nuclear magnetic resonance imaging) technology, nuclear source materials, TDX (an electronic switching system), CDMA (Code Division Multiple Access: a wireless telecommunication system), automobile engines, computers and so on, almost all of which were the results of local and/or international joint R&D drawing upon foreign technologies. As an example, the Electronics and Telecommunication Research Institute (ETRI; a government R&D institute) developed TDX-1 in 1984 and TDX-1A in 1988 based on foreign technologies and successfully installed the new system to expand telephone lines in the rural areas of Korea. Then, ETRI organized an R&D consortium to develop TDX-10, a large-scale switching system to replace the old systems in large urban cities. The development of TDX-10 was completed in 1991. This was an achievement of private-public joint R&D to create new commercial opportunities using existing foreign technologies. Learning from this experience, Korea was able to develop and commercialize the CDMA system first in the world in the mid-1990s. The development and commercialization of DRAM, TDX, and CDMA technologies laid a foundation for Korea to emerge as a major IT power today.

What made Korea a successful fast follower?

Over the past decades, many developing countries have tried similar strategies but very few succeeded. What distinguish Korea from others? What does Korea have that others lack? A few factors stand out among many others. The most important factor is the human resources. Without the well-educated, strongly motivated, and highly disciplined workforce, Korea would not have been able to achieve the success. Another factor is the consistent policy vision of the government that could put the Korean society together toward the shared goal. The export-based development strategy also has been very effective in stimulating innovation in private industries. In order to survive and win the competition in the export markets Korean companies have had to invest heavily in technology and innovation. Korea could also invest more in R&D and innovation because of the cultural value that emphasizes frugality which explains the high savings rate and high investment rates of Korea during the development period. What is very interesting is that the factors above are very much related in some way or another to the Confucian culture that promoted education and made it easier for the government to mobilize the society to achieve the set goal.

Can Korea continue to grow?

Unfortunately, however, diverse symptoms indicate that Korea has hit the limit of the “fast follower” strategy. Slower growth, reduced job opportunities for new entrants into the labor market, declining performances of Korean companies including Samsung – all these warn that the past strategy no longer works and Korea has to change in order to renew the dynamism. It is a call that Korea has to transform itself from being a follower to an innovator, to which the Korean government responded with a new development vision – “creative economy.” Despite the confusions over what the creative economy means, the main idea appears to be that new growth can be created by promoting and facilitating cross-fertilization of IT and other areas. Some agree to the idea, while some are very doubtful. But what concerns us more is how the policy idea is implemented rather than the idea itself.

The questions are: Can Korea achieve the creative economy under the current system of innovation? Can the government lead effectively innovation toward the creative economy as it did in the catch-up process? One of the key features of the Korean innovation system is the role of government which is rarely matched in terms of its influence over the private sectors. Such a system has a lot to do with the Korean culture that is deeply rooted in hierarchical collectivism that places higher value on community than on individuals, emphasizes social order more than interactions between the members of the society, and is strict about the ethical norms. This provides a glimpse of what the relationship is like between the government and private sectors in the Korean innovation system. In such a system, it is easier to achieve social cohesion and mobilize the social energy toward a shared goal, and so it is very effective when the goal can be clearly defined and the path to the goal is already known, as it is in the case of “fast follower” strategy. But the other side of the coin is that the Confucian culture tends to discourage free and open interactions between the members of the community, suppress new ideas, discourage risk-taking by penalizing failures and seldom accommodate different ideas, implying that the culture is far from being conducive to creative innovation. Ironically, this suggests that the factors that made the past success possible may now work as barriers to a new growth. To sustain the growth into the future, Korea should find some way to reconcile the Confucian culture with the culture of innovation which is founded on diversity, openness, trust, interactions, tolerance and so on. In particular, the government should redefine its role in navigating the country toward a creative economy.

Any lesson for others?

The Korean experience shows that there is no such thing as optimal or best innovation system. National innovation system evolves in the national context which is influenced by various factors, such as culture, historical backgrounds, political system, natural environments, and others which also are subject to change. This means that there is no model or practice that transcends time and cultural space. The Korean experience just confirms the conventional wisdom that human resources and consistent policy are key to innovation.

Sungchul Chung
Research fellow emeritus, STEPI
Professor of S&T policy, University of Science and Technology
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