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

29 April, 2010

Are Civil Servants Uniquely Virtuous?

By Aaron
29 April, 2010

Here's a letter I sent to the Joong Ang Daily newspaper today. It's not as eloquent an explication of my views as I'd like, but with any luck you'll get the gist. On a personal level, this new regulation strikes awfully close to home, as it means that I'll have to give up my dream of joining the Korean Chippendales.

Seeking to protect "the social order and ‘good’ social conduct," the Korean Justice Ministry announced this week that it will ban foreign spouses of Korean citizens from working in nighttime entertainment venues such as nightclubs, massage parlors, and singing rooms. In taking this step, the Justice Ministry claims that it is promoting a "proper" multicultural family environment.

The officials responsible for this measure evidently believe that their positions in government give them an unusually keen sense of morality. Yet, as the recent sex-charged corruption scandal in Busan shows, government officials have hardly shown themselves over time to be noble guardians of "good social conduct" or "proper" family environments.

Quite simply, no moral transformation occurs when a person moves from the private sector to the government sector. Government officials have the same foibles as everyone else, but by dint of their position they have the power to force their values upon society. As the ongoing scandal in Busan shows, government officials' pronouncments on morality merely serve, more often than not, to highlight their own arrogant hypocrisy.

Aaron McKenzie

Update: The Joong Ang Daily published this letter on 3 May, 2010.

27 April, 2010

Self-Sufficiency: The Road to Poverty

By Aaron
27 April, 2010

Idaho, perhaps more than any other American state, has a knack for attracting human oddities - survivalists, militias, Neo-Nazis, and Ernest Hemingway, to name but a few. In fact, my paternal ancestors, Highland goat thieves who got themselves thrown out of Scotland back in the day, came to the New World in search of a home but the only place that would suffer their quirks was the Idaho territories. And while the capital city of Boise, where I was born, has become more cosmopolitan in recent years, the state as a whole continues to be a living monument to the eccentricities of mankind.

As evidence, I give you Richard "Dugout Dick" Zimmerman, who spent more than sixty years living in a series of caves along the Salmon River, near the hamlet of Elk Bend, and who died this past week at the age of 94. A creature of peculiar habit, perhaps, Zimmerman was hardly an outlier where the choice of Idaho lifestyles was concerned:

He was the last of Idaho's river-canyon loners that date back to Territorial days. They are a unique group that until the 1980s included canyon contemporaries with names like Beaver Dick, Cougar Dave and Wheelbarrow Annie, "Buckskin Bill" (real name Sylvan Hart) and "Free Press Frances" Wisner. Fiercely independent loners, they lived eccentric lives on their own terms and made the state more interesting just by being here.

Most, like Zimmerman, came from someplace else. Drawn by Idaho's remoteness and wild places removed from social pressures, they came and spent their lives here, leaving only in death.

I've long respected this piece of Idaho's personality. Yes, the place attracts some loony characters, but for the most part they're free to live lives of their choosing provided they don't pester anyone else. If someone wants to stock up on canned food and prepare for an invasion by United Nations shock troops, or if Dugout Dick wants to buy some land and live in the side of a mountain, well, then I'm glad the country accords them the freedom to do so.

That said, Dugout Dick's life is hardly one to be romanticized. Watch the video above and you'll see that what characterizes his life more than anything is poverty. Voluntary poverty, perhaps, but poverty nonetheless. And for all the claims about his self-sufficiency, one look around his spartan quarters - built with old tires, discarded doors and stocked with manufactures aplenty - shows that even ol' Dugout availed himself of the gains from trade once in a while, and his standard of living was ever so slightly higher as a result. True self-sufficiency would only have made this fellow even poorer than he already was.

In the video I've linked below, you'll hear Dugout Dick's fellow full-time cave resident, Bruce Long, expound on the environmental benefits of living in this manner. For cooking and heating, Long says that he burns one five-gallon pail of wood each day, which he sees as an eco-friendly way of making his homefries, as it were. Just imagine, though, what would quickly become of the earth's forests if everyone jumped aboard Long's woodburning bandwagon, to say nothing of the soot and smoke that would soon cover our living spaces and coat our lungs. An odd brand of environmentalism, if you ask me.

Still, even as I have no desire to live like Dugout Dick or his buddy Bruce, I'm thrilled to live in a world that accomodates such folks. I'm even happier, however, that their lifestyle is an option, not a requirement as it would have been in the not-so-distant past.

A more recent video on Dugout Dick:

26 April, 2010

STRATFOR: The Next Steps for South Korea

By Aaron
26 April, 2010

14 April, 2010

Of Wal-Mart and India

By Aaron
14 April, 2010

Mumbai, India

Gandhi distrusted technology but not businessmen. Nehru distrusted businessmen but not technology. Instead of sorting out the contradictions, we mixed the two up. We have had to deal with holy cows: small companies are better than big ones (Gandhi); public enterprises are better than private ones (Nehru); local companies are better than foreign ones (both). They so mesmerized us that the succeeding generation, whose job was to jettison those foolish ideas, failed to do so and did us incalculable harm.

Here's a quick game for you: try to guess the year in which the above picture was taken. Before you blurt out an answer, though, notice the following things: at least four men are moving heavy loads with their hands and feet and, other than two old taxis and the cargo truck, no cars are visible in the picture. Hell, most of the people are either walking or riding bicycles. For all you know, this picture could just as easily have been taken in 1950 as in 2010.

In fact, I took this picture in 2006 in the center of Mumbai, India's most vibrant city. The countryside, by the way, is still waiting for the wheel.

Despite its impressive economic growth over the past twenty years, India continues to have one foot stuck in the time trap. A person can scarcely move in the country without seeing the local people doing things in ways that even your grandparents would have considered outmoded: doing laundry in a river, for instance, or hauling water in buckets from the same river. I even had someone, in this age of the cotton swab, offer to clean my ears on the street for a small fee. That there is no better use for this man's skills and brains in an economy with the size and potential of India should tell you something about the place.

And indeed it does. What it tells us is that India is poor. Why is it poor? Certainly not for a lack of human resources, nor for the quality thereof. Just look at the number of successful Indians in Silicon Valley, on Wall Street, in my favorite restaurant in Seoul, and you'll see that Indians tend to prosper everywhere except India.

As the picture above shows, India is poor because it lacks technology and the incentives to use its resources more efficiently. That a spinning wheel occupies the center of India's national flag, then, is depressingly appropriate. But what does the Indian government do when some folks show up at the front door offering to bring this knowledge and technology into the country? Keep them out, that's what.

As International Herald Tribune reported today, the Indian government and local activist groups are trying their damndest to keep Wal-Mart out of India. They do this despite the fact that Wal-Mart has the potential to be more beneficial to India than any foreign aid program ever devised for the subcontinent:

...up close, visitors can see some curious experiments: insect traps made with reusable plastic bags; bamboo poles helping bitter gourd grow bigger and straighter; and seedlings germinating from plastic trays under a fine net.

These are low-tech innovations, to be sure. But they are crucial to the goals of the benefactor — Wal-Mart — that supplied them.

Two years after Wal-Mart came to India, it is trying to do to agriculture here what it has done to industries around the world: change business models by using its hyper-efficient practices to improve productivity and speed the flow of goods.

As the article notes, Wal-Mart pays Indian famers 5-7% more for their produce than those farmers would get at traditional wholesale markets, and, in what appears to be a novelty, Wal-Mart actually pays on time. Furthermore, Wal-Mart handles the transport of the veggies over India's notoriously awful roads. In exchange, Wal-Mart demands a higher quality product, which pushes producers to improve their production methods and become more efficient. Unfortunately, due to India's obstructive bureaucracy, Wal-Mart can only do so much:

For Wal-Mart, establishing an agricultural beachhead in India will not be easy. Many Indian companies have abandoned or significantly scaled back efforts to run supermarkets. Some companies grew too quickly and flamed out. But many others were undone by the numerous Gordian knots that hold back Indian agriculture: laws limit who can buy farmers’ crops, 35 percent of fruits and vegetables are wasted because of inefficient transportation and farmers earn too little to invest in their marginal farms.

If ever a country needed Wal-Mart, it's India. Wal-Mart is justly famous for its low retail prices, but underpinning those prices is an allergy to the waste of scarce resources. If 35 percent of fruits and vegetables are wasted in the country simply due to inefficiencies, imagine how much of everything else goes to waste. Do the arithmetic and it's not hard to see why India is poor. After all, no family gets rich by throwing away a third of everything it buys or makes. Why should the reality be any different for a country?

These local bureaucrats and interest groups, however, prefer to keep the Indian people in poverty rather than allow a foreign company to increase the population's standard of living. In addition to being assinine, such zero-sum attitudes toward economic success are downright immoral.

11 April, 2010

Politics Above Markets: The Greek Debacle

By Aaron
11 April, 2010

Once upon a time, Greece was simply a minor country in Southern Europe, known mostly for its sun-bleached coastline, great philosophers of old, and its long-running spat with the Turks. Oh, and riots, those Greek civil servants have long loved themselves a riot. As it turns out, these bellyaching bureaucrats have more than a passing connection to the current economic mayhem in Greece, which currently has the more solvent European states in a proper conniption as they try to decide what to do about Greece's spendthrift ways. Meanwhile, the world financial markets worry that a Greek default could spread to other financially tipsy nations such as Portugal, Spain and Ireland.

The biggest problem, says writer Takis Michas in the Cato Events video above, is that 25% of working Greeks are currently employed by the State, which means that for years the economy has been groaning beneath the weight of simply paying for these folks' wages and benefits, to say nothing of the services they are supposed to provide to other citizens. Naturally, these featherbedded folks take to the streets every time anyone gets a notion to bring their compensation packages back into this stratosphere. Evidently, said public "servants" are shocked to discover that money doesn't grow on those olive trees.

This video is well worth a watch, particularly Michas' portion (the first of the two main speakers), for its explanation of Greece's bloated public sector. Michas attributes part of this problem to Greece's lack of a functioning civil society, that is, the voluntary institutions of cooperation that lessen the need for coercive state measures. In this, of course, are echoes of Edward Banfield's The Moral Basis of a Backward Society, where a lack of civil society spawns government bodies to fill the gap, but the actions of the state end up crowding out any nascent civic cooperation. The vicious circle produces more and more layers of state regulation and control until, eventually, all roads to success in that society run through the state.

In addition, Michas is clearly familiar with the Public Choice theory of Gordon Tullock and Anne Krueger (both of whom he cites by name in his lecture), which has shown that the more power becomes concentrated in government hands, the more corruption and rent-seeking will ultimately follow. Greece is no exception to this rule: it is second only to Bulgaria in terms of measured corruption among EU states. Michas concludes:

One of the main criticisms the Left has been directing all these years against capitalism is that capitalism puts markets above people. At the same time, the left believes that political intervention is needed to restore the people to their rightful place - lifting them, that is, from their tragic position as slaves to the whims of the market to their glorified position as lords and masters of the market. What makes the case of Greece so interesting is that it can be said to provide the perfect realization of the vision of the Left, the vision of putting people above markets...Greek politicians have indeed always placed people - that is, their clients - above markets, with the results we can all see today.

07 April, 2010

High-Speed Train Whistle Blues

By Aaron
07 April, 2010

My pocketbook is empty and my heart is filled with pain
I'm a thousand miles away from home, just waiting for a train.

Americans have a long-running love affair with trains. Steam engines, hobos, train robberies in the old western movies, the legend of John Henry's hammer - trains hold a central place in the history and folklore of the United States. Romance, however, as we all know, often leads people to spend egregious amounts of money and to do stupid things.

Such as building high-speed rail lines.

As the New York Times reported this week, the construction of the rail lines currently being planned may add an interesting twist on American's railroad history:

Nearly 150 years after American railroads brought in thousands of Chinese laborers to build rail lines across the West, China is poised once again to play a role in American rail construction. But this time, it would be an entirely different role: supplying the technology, equipment and engineers to build high-speed rail lines.

Unfortunately, as the article indicates, China's agreement with the State of California and General Electric is laden with "Buy American" provisions, requiring, for instance, that 80 percent of locomotive components and system control gear come from American suppliers. Note that the agreement does not stipulate that components be produced in the most efficient (i.e. the least resource-intensive) manner, but rather that the project should function as a cashcow and make-work program for well-connected industry lobbies and labor groups. This should be a hint to those concerned with both fiscal continence and environmental protection that these rail projects will likely be a net drag on both pocketbooks and on efforts to reduce pollution.

As Nick Gillespie of Reason Magazine notes in the video above, rail systems around the world have long relied on state subsidies in order to operate, a reality which will in all likelihood be repeated in the United States (see: Amtrak, which currently loses $28-$84 per passenger on its short-distance routes). Aside from the troubling financial reality, this may be evidence that these trains are doing more harm than good to the environment. To see why, consider the following scenario.

Imagine for a moment that all "eco-friendly" technologies and energies require government subsidies (that is, they are not profitable on their own). This means that private sector businesses and individuals, who pay the taxes that finance the subsidies, and who use "dirty" conventional technologies and fuels, will have to work harder and longer - thus producing more CO2 - in order to finance any "eco-friendly" ventures via their tax payments. Quite simply, if a product or service cannot turn a profit in an open, competitive market (wherein externalities are effectively priced), then there's a very real possibility that it's bad for the environment. Profits, after all, are not simply about money. A profit tells us that we are using our resources efficiently, while a loss signals the opposite and prods us to use our resources more intelligently and conservatively. This is true for everything from alternative fuels to, yes, mass transit systems. If it's losing money, it's a waste of resources.

Not surprisingly, as Randal O'Toole points out, planners have predicted that a proposed rail line in Florida would emit more of the same pollutants than the cars it would take off the road. The same, in all likelihood, is true of a line in California. And in terms of the impact to your wallet, the new high speed rail lines would cost every federal income taxpayer $1,000 per year, whether you use the train or not. Paying $1,000 for something you value is a bargain; handing over the money in exchange for nothing - or when you could have more cheaply bought an airplane ticket with some of the same cash - is a waste of resources.

As a relevant aside, I have been trying to get my hands on the financial figures for South Korea's public transportation systems, including the various city subways and the national railroad corporation. If anyone knows where I might find such numbers, please let me know or leave a link in the comments.

See also: Randal O'Toole, "High Speed Rail: The Wrong Road for America"

The Economist on Lee's Return to Samsung

By Aaron

In his 2006 book, Diamond Dilemma, Tariq Hussain suggested that, by insisting on dynastic succession in its leadership, the Samsung group accepts a 10-20% discount on its share price, even as it maintains, by many accounts, the best stable of executive talent in South Korea. For years, the assumption has been that, whoever else might be qualified to lead Samsung, Lee Jae-Yong - grandson of the group's founder and son of the current family patriarch, Lee Kun-hee - would assume control of the chaebol when his father is finally ready to hang up the blue coveralls. As The Economist notes in this week's issue, however, the return of the elder Lee to the chairman's office at Samsung Electronics is making folks wonder whether the talent pool at Samsung is as deep as advertised. And that's just the first question:
Yet Mr Lee’s comeback causes nervous speculation. If Samsung really does face a crisis, what does that mean for South Korea? If Mr Lee believes he is the only person who can avert disaster, what does that say about the business acumen of his potential successors? And if he can walk back into the corner office without even having board approval, can it really be argued that the country is progressing to Western-style standards of corporate governance? Business people have watched, with a mixture of suppressed glee and dread, former role-models such as Toyota and General Motors struggle with huge financial and technical problems. Could this be the fate that Mr Lee fears for his firm?

06 April, 2010

Forbes Magazine on the "Moonie" Family Empire

By Aaron
06 April, 2010

To watch the full video, you'll need to download the Veoh video player. Sorry, but this
video really is worth watching.

Longtime Korea hand Donald Kirk has landed on the cover of this month's issue of Forbes Asia with his story on the current corporate dealings and family in-fighting surrounding the Reverend Moon Sun-Myung. Moon, of course, is the 90 year-old head of the Unification Church, famous for its mass weddings and sprawling business empire, most of which is now overseen by the reverend's offspring.

Apparently, all is not well in Moonieland. One of the reverend's sons, Hyun-Jin, is estranged from his siblings and many of the family's business ventures continue to print financial reports in nothing but red ink. Still, for all its travails, the church isn't buzzard bait yet:

But revival, both financial and spiritual, is the mission now. The business empire cum religious movement slowly disintegrated for years. These days Kook-Jin and Hyung-Jin are working in tandem--Kook-Jin turning the nonprofit Tongil group into a viable if secondary chaebol or conglomerate, pumping funds into the church and educational enterprises while Hyung-Jin revs up a congregation once in danger of becoming old and moribund.

As happens every time I read an article about the Unification Church or the Moon family, I was once again surprised while reading Kirk's piece at the number of well-known companies affiliated with the church and its largest corporate body, the Tongil Foundation. A few you might recognize: Yongpyong Ski Resort (South Korea); JW Marriott Hotel & Central City Complex (at the Express Bus Terminal in Seoul); Segye Ilbo newspaper (South Korea); The Washington Times newspaper; Pyeongwha Motors (the only automaker in North Korea); and McCol (a horrible, barley-based soda sold in Korea).

How's that for variety?

05 April, 2010

Audio Goodness: KBC Interview Series

By Aaron
05 April, 2010

The folks over at Korea Business Central have put together a series of excellent interviews on Korean affairs. The guest list thus far includes Dr. Jin Kyu Robertson, Marcus Noland, Victor Cha, Tom Coyner, and Peter Underwood. Give 'em a listen and check out KBC's site.

04 April, 2010

Goose, Meet Gander

By Aaron
04 April, 2010

The Joong Ang Daily newspaper reported in an editorial today that the United States Trade Representative has its undies in a bunch over South Korea's fuel efficiency standards for cars sold in the Korean market. According to the 2010 National Trade Estimate Report on Foreign Trade Barriers, the standards, which are a part of Korea's push for so-called "green growth," are little more than a thinly-veiled barrier to those American cars that every Korean is clamoring to buy. The Koreans, of course, deny that the fuel standards are a trade barrier and anyway, they claim, no self-respecting Korean would be caught dead in a Chrysler or Chevrolet.

There is, of course, more than a little irony in this story, given that the Obama administration just last week formalized the adoption of its own new set of fuel efficiency standards for the United States. Yes, the Korean standards are more stringent than those in the US, but if saving the earth really is a life-or-death priority, shouldn't the Obama administration be cheering the Koreans' commitment to eco-friendliness? Perhaps the higher standards here in East Asia will be the catalyst for a car that runs on good intentions. And if, as President Obama claims, higher fuel efficiency standards will create jobs and spur economic growth, why deny those same benefits to South Korea? The richer the Koreans become, the more iPods they can buy and the more they can afford to send their kids to American schools.

01 April, 2010

What's With All the Franklin & Marshall College Apparel in Korea?

By Aaron
01 April, 2010

So this is why I've been seeing so many Korean folks wearing F&M shirts around Seoul lately. I'd just assumed that a Korean TV drama had, for some reason, set part of its story there, as happened with UCLA (and Harvard, too, if memory serves) a few years back.

The Return of Lee Kun-hee: Good for Korea?

By Aaron

Late last week, the Samsung Group announced that former chairman and family patriarch Lee Kun-hee, who was convicted last year of tax evasion and has been on official leave from the group since 2008, would return as chairman of the group's flagship company, Samsung Electronics. The scene was, to quote Yogi Berra, like déjà vu all over again, as this was not Lee's first dalliance with criminality. In the 1990s, Lee was convicted of bribing two former presidents but was later pardoned and returned to the helm at Samsung.

Sound familiar?

It should because, as I wrote in 2008 when the news of Lee's latest trespasses first broke, this accuse-convict-pardon storyline replays itself so often in Korea that it has nearly ceased to be newsworthy. You can hardly swing a cat in the ROK these days without hitting a convicted felon who doubles as a the head of a chaebol. And don't bother swinging that cat near a prison, because none of these fellows is in the clink for their transgressions.

Now, it should be noted that, whatever the length of his rapsheet, Lee has presided over the most successful period in the history of Samsung, during which time the company was able to shrug off its reputation as a producer of flimsy crap and became a global leader. And I've heard from several acquaintances who work at Samsung that the company has lacked discipline and direction in Lee's absence, a plausible claim given Lee's reputation for demanding good answers and prompt solutions.

Yet, while Lee's return might well benefit Samsung, I find it hard to believe that, as the Joong Ang Daily had the audacity to suggest, his return will be an unmixed blessing for the broader Korean economy. Lee returns to a political-economic landscape unchanged from the one he left two years ago, that is, one characterized by a very cozy relationship between the government and the local conglomerates and which has its roots in the state-led economic development policies that followed the Korean War. Indeed, the Samsung Group got its start by refining sugar acquired for its founder, Lee Byung-Chul, by the Korean government, headed at the time by the notoriously corrupt President Syngman Rhee. But what's good for Samsung is not necessarily good for the economy as a whole.

Every time a corporate executive ends up in the news for any sort of malfeasance, local civic groups and news outlets trot out their traditional demands for better regulation, more transparent government and stiffer penalties for these hoodlums in neckties. But while transparency and justice are laudable goals, what these folks are generally looking for is more, not less, government involvement in the economy, all the while failing to realize that it is precisely the control exercised by the state in economic affairs which has created the incentive for corruption.

Quite simply, the way to reduce the influence of special interests and corporate lobbies is to reduce the role of the government in handing out money and favors. As George Will has written, one iron law of politics is that the concentration of power in government hands will increase the power of interests whose representatives are concentrated there. In other words, if you don't like the fact that Lee Kun-hee and his chaebol cohorts have so much influence with the government, give the government fewer favors to hand out.

Unfortunately, seeking favors from the government is not free. As Gordon Tullock pointed out in a key insight, the resources (time, money, etc.) used to lobby the state for certain privileges are resources that could be put to more productive uses elsewhere, thus causing inefficiency. Under the current business-state relations in South Korea, it may be perfectly logical for Samsung to lobby - or outright bribe - the government for benefits, but this lobbying represents a waste of resources and a loss to the Korean economy as a whole, thus making the country poorer.

All of this, of course, is to say nothing of any reputational damage Korea may suffer as it is perceived as a nation where corporate crimes go essentially unpunished. I've gone into this at length in the past and won't flog the point further here, but suffice it to say, the Korea Discount should be a real concern for Korean citizens.

So while I wish Samsung the best as it welcomes back Lee Kun-hee, I'm not so naive as to think that the reunion will be a net boon to the Korean economy.

Related Reading:
Child is the Father of the Man
The Heritage Foundation's Index of Economic Freedom: South Korea