South Korea and the specter of industrial policy
A specter is haunting Europe—the specter of industrial policy. European institutions are shaping their financial response to the Covid19 crisis: the European Commission is boasting a €750 billion ($824 billion) coronavirus recovery plan. Though details are still unclear, the idea that has been floating around for weeks is that of selective injections of money aiming to produce a European industrial policy, beginning with a “Green New Deal”. Sometimes where government money is allocated is a matter of luck: plenty of “green” projects were sitting on our governors’ desks, with few resources to finance them, before Covid19. Now that a window of opportunity has opened for massive public spending, they’ll be smuggled in.
It is interesting to note that leaders, beginning with Merkel and Macron, have been advocating relaxation of the EU’s state aid rules and changes in the regime of competition policy to enable the emergence of European “champions”, bigger businesses shielded from competitors for the sake of advancing the interests of the European nations. This opens the door to the possibility that big business will be more and more the pet project of government authorities in the EU. The European “Hamiltonian moment” may coincide with scaling up cronyism at the European level.
In this context, I think Christian Oliver has written a fascinating article for Politico.eu. Oliver argues that European leaders claim they want to imitate the South Korean model, associating it with a robust dose of industrial policy, but this is happening just when the South Koreans are trying to get over it, to foster entrepreneurship and small and medium enterprises.
Here’s a relevant passage:
Korea now realizes that it needs to change tack to unleash the country’s bottled-up talent and pump more oxygen into SMEs in areas like gaming, fashion, music, biotech and medical services. The current left-wing administration of President Moon Jae-in founded a ministry for SMEs in 2017 and is trying to roll out a raft of incentives to rebalance the economy more to the little guy It’s going to be a long haul, though. Korean SMEs have a miserable time as the little fish, and their struggle to survive in the chaebols’ [[chaebols are large conglomerate still largely controlled by the founding family] pond should show Merkel and Macron why tough competition policy on champions is so important. The conglomerates have such prodigious market clout in Korea that they can suffocate suppliers with bullying contracts and derisory payments. If you have a great idea or invention, the chaebol will buy you out, if only to kill you off as a rival. This is a very different situation from Japan, and Korean entrepreneurs look with envy to the city of Osaka, which prides itself on its SME culture. Fears about Korea’s ability to innovate also loom large in Seoul’s attempts to steer away from chaebols. At heart, chaebols are fast-followers (or copycats, if you are less generous) with militaristically brilliant manufacturing. Apple invents the iPhone? No problem, Samsung can rustle up a Galaxy smartphone. But China can also play the fast-follower game. The sort of commercial DNA where Korea really does have a quirky, free-thinking edge over China is not really monetizable in old-school chaebols.
In part, this is at odds with the narrative about the ability to quickly mobilize research on the part of the South Korean government, that Terence Kealy considered important for its Covid19 response. But Oliver did not focus that much on the health care sector. I admire his spirit in challenging the now dominant industrial policy narrative.