Nonsense, horsefeathers, and idle musings from a decade in South Korea (2002-2012).

31 January, 2010

If You Build It...

By Aaron
31 January, 2010

PJ O'Rourke once quipped that the reason politicians have such a love affair with trains is that they get to decide where the tracks go. For much the same reason, politicians adore planned cities.

Since the 2002 presidential campaign, South Korea has toyed with the idea of moving its capital city out of Seoul and down to South Chungcheong province, near Daejon. This was an idea chiefly pushed by Roh Moo-hyun, the now-deceased victor of the 2002 election, on the premise that Seoul had become too crowded and too much the center of wealth and power in the country. Of course, such a proposal didn't hurt Roh's political fortunes in the Chungcheong provinces, either. And so, in July, 2007, ground was broken for the Sejong Special Autonomous City, named for Korea's most famous king. Even now, though, more than two years since the project began, the national government still cannot figure out what to do with the city. In fact, as the Joong Ang Ilbo reported last week, the administration of President Lee Myung-bak has just released the latest iteration of the government's plan for the city.

I had the opportunity to visit the construction site of Sejong City in early November as part of a KDI event. There is, as yet, little in the way of construction, though the land has been cleared and a visitor's center stands ready to show the obligatory "Korea: Harmony and Dynamism for the 21st Century!" video - complete with stentorian narration - to anyone willing to sit through it. The purpose of this video is to convince skeptical citizens that this project is a good idea and to entice investment from companies and universities. Unfortunately, the city's slogan, "A Multifunctional Administrative City," evokes nothing so much as images of standing in line to get a driver's license or register your dog - not exactly the high-tech, uber-modern theme the planners have been pushing. And thus far, the reaction to this marketing slogan has been pretty much what you'd expect: a few memorandums of understanding from universities, noncommittal curiosity from some companies, and sniffs of outright derision from many who doubt the government's ability to build a viable city where none existed in the 3,000 year history of Korea.

Coincidentally, my visit to Sejong City came only a few weeks before the news of Dubai World's debt problems broke. The middle eastern emirate came to prominence over the last decade or so by seeking to build an economy less dependent on its ever-shrinking oil revenues. The city was overtaken by a construction boom that included such questionable projects as the Palm Islands and the Burj Dubai. Although managed by ostensibly private companies, these projects and most others in Dubai were blessed and orchestrated by the government, and in particular the prime minister, Sheikh Mohammed bin Rashid Al Maktoum. Having watched Field of Dreams one too many times, Sheikh Mo, as he's known, evidently believed that a flashy city in the desert would prove irresistible to one and all. Of course, a crisis hit world financial markets and people proved less willing than expected to pony up millions of dollars just to live on an island shaped like a palm tree.

Friedrich Hayek once wrote (in The Fatal Conceit) that "the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." Cities are complex organisms that evolve naturally for a whole host of reasons, many of which are imperceptible to the humans who inhabit them. A city rests as much, or more, on a foundation of invisible social and cultural interactions as it does on the roads, sewers, or buildings that we see. They are for the most part, as Adam Ferguson put it, the result of human action but not of human design. Of course it's possible for the governments of Dubai or Korea to pour almost unlimited resources into the construction of roads, buildings, and other infrastructure to create a city, but just because something can be done does not mean that it should be done. After all, to what other use could those same resources have been put?

Dubai World's troubles are exhibit 1A of this reality. Let's hope Sejong City does not become exhibit 1B.

27 January, 2010

Beware the Rising Tide of Good Intentions

By Aaron
27 January, 2010

As The New York Times reported this week, the Norwegian government is getting a valuable lesson in the dangers of categorizing people rather than treating them as individuals. Back in 2002, the country's trade and industry minister got the bright idea that the world would be a nicer place if 40 percent of all company board members in Norway - even in private firms - were female. Just another politician and his fantasies, right? Not quite: the Norwegian Parliament took a shine to the idea and in 2003 passed a law that went into effect in 2006 for state-run firms and in 2008 for private companies. And sure enough, women now account for more than 40% of directors at the affected companies.

Problem solved. Next issue.

Not exactly:

" the dust has settled, researchers are grappling with some frustrating facts: Bringing large numbers of women into Norway’s boardrooms has done little — yet — to improve either the professional caliber of the boards or to enhance corporate performance. In fact, early evidence from a little-noticed study by the University of Michigan suggests that the immediate effect has been negative on both counts. And the sixfold increase in women as directors has not yet brought any real rise in the number of women as chief executives."

Could it be that the composition of corporate boards prior to this law's enactment cannot be explained on purely chauvinistic grounds? It's not that discrimination doesn't exist in the world, but researchers have had one hell of a time proving that it alone accounts in any significant way for the disparity between male and female achievement in the workplace of Western economies. One reason for this lies in the fact that - and you'll want to sit down for this news - men and women, as groups and individually, are different. They are often raised differently by their parents, they choose different careers, and due to the inevitable burdens of biology and childbirth, the average female spends significantly less time in the workplace than does a man of similar age and educational background. All of which means that making broad male-female comparisons will tend to land us right back at that old apples-and-oranges dilemma.

Most smart personnel managers know this: when they seek to fill a position, they're not comparing men and women, they're comparing individuals with different education and skill sets. Conversely, simple-minded personnel managers who choose to hire based on genitalia pay an inevitable price for their prejudice. Ironically, as the Times piece points out, the Norwegian quota was sold to businesses with the following tagline: “Profit is made by employing the best people, regardless of gender.” To judge by the early evidence (and, as always, we have to take care not to confuse correlation with causation), it seems that this is precisely what companies were doing before the quota went into effect. Now, however, they're being forced to consider gender, even at the expense of merit.

Interestingly, as Thomas Sowell has noted, in the United States "when you compare college-educated, never-married individuals with no children who worked full-time and were from 40 to 64 years old - that is, beyond the child-bearing years - men averaged $40,000 a year in income, while women averaged $47,000." Now that we've compared apples with apples, are we to conclude that men are suffering from discrimination?

The most basic method of getting more women into the office is to encourage a more competitive marketplace, as this will exact a higher toll upon those who discriminate based on gender (as well as race, religion, etc.) and give employers less latitude for indulging their prejudices without risking their own bottom line. Perhaps the Norwegian Parliament will stumble upon this idea eventually.

19 January, 2010

Fortune Magazine on Hyundai Motors

By Aaron
19 January, 2010

Fortune is currently running a fawning story on Hyundai Motors (with the above video) and its emergence as a threat to the existing power structure of the global automotive industry. The article is worth a read, especially for those of us who still remember those first rickety Excels to be sold in the United States in the 1980s. Indeed, it's been fascinating to watch the evolution of Hyundai (and its sister company, Kia) from a maker of low-quality, low-budget cars, to reliable but boring vehicles, and now into a company that produces cars and SUVs which win plaudits not only for their styling but also their performance and reliability.

Hyundai certainly seems to be making its move at the right time. As The Economist reported last month, Toyota no longer appears invincible; the Big Three of Detroit haven't exactly inspired confidence of late; and the financial crisis has made the lower prices of Hyundai's cars all the more attractive to consumers. I'm not sure it's cool to own a Hyundai just yet (though the Genesis Coupe could change that), but at least you'll no longer be the object of ridicule for driving one.

As it happens, I had the opportunity to visit Hyundai Motors' main Ulsan assembly plant - the world's largest integrated auto factory - in October of last year (a KDI junket that also included a stop at the Hyundai Heavy Industry shipyards). Full disclosure: I have fetish for factories and assembly lines anyway, but the precision and complexity of such places ought to make anyone proud to be a human. After all, I have yet to meet a band of chimpanzees that could churn out a car every twelve seconds (or, for that matter, build a supertanker in 8-10 months).

It bears noting, however, that Hyundai's current success may not entirely compensate for the cost required to attain it. Since at least the early 1960s, the automotive market in Korea has been heavily protected from foreign competition (and in some cases, domestic competition, too, as when the Korean government, in an effort to help Hyundai, ordered Kia to stop producing passenger cars) and at times outright subsidized, which of course led to the growth of domestic manufacturers. Many now argue that such protections of infant industries underpin the current success of not only Hyundai in automobiles but also of Samsung and LG in electronics. What this ignores is the cost of such policies: to what other uses might these resources - which were spent either by the government or citizens to produce and buy overpriced, low-quality cars in a protected market - have been put? A handful of Korean firms that received protection are now globally competitive, but does their success adequately compensate for the many firms that received special favors but which failed anyway?

At the root of these questions is what the 19th century French philosopher Frédéric Bastiat called "the seen and the unseen." That is, it's easy to point to Hyundai's present day feats and deem the policies which promoted the company a success, but because the resources that were used to favor Hyundai could not be directed elsewhere (in a manner involving less government coercion), we are unable to see what would have happened had Hyundai not received preferential treatment. Moreover, the favortism shown toward Hyundai likely came at the expense of smaller firms in Korea's light manufacturing sectors - the main source of Korea's comparative advantage in the 1960s and 1970s - and it's unwise to suddenly dismiss such costs now that Hyundai is making a profit.

I wish Hyundai all the best and hope they give Honda and Toyota more than just a scare, but let's not pretend that their success has been a cheap ride for Korea.