Tag Archive | "social issues"

Korean AI Market Competition Heats Up

By Hwan Kang

Elon Musk tweeted last August that AI (Artificial Intelligence) has “vastly more risk than North Korea.” So it may seem ironic to him that South Korean companies from different industries are so eager to apply AI into their services amid the ongoing missile fiasco in the North.

Major IT companies such as Naver and Kakao have announced throughout the year that the next main focal point in their businesses would be developing their own AI that can process deep learning and provide better services to the users. Naver has boasted about its devotion to AI development by acquiring Xerox Research Center Europe (now Naver Labs Europe), a leading lab in intelligence research, and aggressively investing in startups that can develop different facets of the deep learning process. On the other hand, Kakao has announced that its new subsidiary for AI research, Kakao Brain, will be personally spearheaded by Kim Beom-Soo, the visionary billionaire who founded KakaoTalk. Its plan is to catch up to the level of other leading research centers by actively recruiting developers with specialties in search patterns and natural spoken Korean.

The first tangible result from the competition in the Korean AI market is the AI speaker. Koreans are excited about the upcoming launch of AI speakers from both tech companies, who promise intelligent assistance that will integrate deeply into customers’ daily lives. These AI speakers will provide easy access to the makers’ various services through voice commands that support spoken Korean and English.

Last August, Naver got a head start on its competition when it unveiled its brand new AI speaker, “WAVE”. The speaker was met with great enthusiasm, selling its entire stock in Korea in just 35 minutes and closing pre-orders in Japan after just 5 days. WAVE uses “Clova,” Naver’s AI platform, as its operating system, and provides convenient services with smart responses. Notable functions include English speaking mode for English learners and Japanese/Chinese translation.

Kakao is also looking forward to launching its own brand of AI speakers called “Kakao Mini” later this year. Not much has been revealed about the product yet, with the website only providing a sneak peek. However, people are anticipating the speaker’s release because it’s AI program, “I”, is expected to be connected to popular Kakao services such as KakaoTalk messenger and Melon’s music app.

More intangible AI results have also been revealed to the public throughout 2017. One example is “Naver Smart Lens”, a visual AI service that can recognize letters, QR codes, and various other images. The “AiTems” system in Naver’s mobile shopping app can analyze preferences from the users’ search history and suggest certain items, even if they have not used the service before. Naver Labs has also participated in the Seoul Motor Show and announced its plans to use deep learning for autonomous cars that can use the system to learn how to detect and avoid traffic. Kakao has similarly announced its bold plan to create a “Smart Home” and apply its AI into new apartments that are under construction. It is collaborating with major construction companies such as GS and Posco to initiate its plan.

The two companies are not the only major players in the Korean AI market, though. Banks and credit card companies have emerged as participants in the market as well. Banks such as KEBHana and Woori have collaborated with telecommunication companies SKT and KT respectively to develop ChatBots. ChatBots will be able to do banking transactions and provide necessary information based on consumers’ behavior patterns. They are expected to advance non-face-to-face banking services even further. Similarly, Hyundai Card has created its own ChatBot, “Buddy,” based on IBM Watson’s natural language processing system. Jung Tae-Young, the CEO of the company, has shown his high expectations for the AI on his Facebook account, saying it will grow up and show different attitudes.

South Korea Ministry of National Defense is also considering applying AI into the country’s defense system, according to its New Year resolution for 2017. It has announced it will consider integrating AI into its cyber defenses against North Korea. In fact, the South Korean military already has something similar to AI in place. The South Korean Army has so-called “killer robots” deployed in the DMZ that work as unblinking eyes on the 38th parallel. The robots are called SGR-A1, developed by Samsung Techwin (now Hanhwa Techwin). They are considered one of the earliest autonomous robot defense systems, along with Israel’s system. Its specifications list a machine gun and grenade launcher as the robot’s primary weapons, and it is equipped with heat and motion detectors that can track down enemies without assistance from humans. They can also use a security clearance procedure with an instant shoot to kill process, but is not activated due to concerns of confusing civilians from enemies. Instead, the bots send signals back to the central base and wait for further command.

Such efforts in Korea to develop and integrate AI into various areas have many economic implications. Korean companies still lack capabilities to compete in the global market. Developing AI is therefore the smart thing to do during the so-called 4th industrial revolution, especially ones that can understand naturally spoken Korean better than their foreign counterparts.

However, Korean companies may not have the advantage of “fast followers.” According to a report from IBK Economic Institute, Korean AI products have nothing to gain from market leaders’ trial and error process because AI is so complicated and inherently closed to outside competitors. Also, since the leaders had the advantage of cornering the market on AI technology, they have had more time to reach the necessary customer base for the system to develop enough sentience, which means the market followers will have to work with the leftover margins. As a result, the major developers with more resources will have continued dominance over the AI market, which is already evident as in the cases of Apple (Siri), Amazon (Alexa) and IBM (Watson). IBM Korea has recently announced that Watson can now understand spoken Korean, so time for Korean AIs is running out fast.

Another implication has to do with an AI’s moral compass. AI programs do not have moral obligations to work for the collective good of society, but they can work to maximize a company’s profits. This means that AIs can become tools to subtly but efficiently empower companies in the market. There are already cases where pricing algorithms have been used to develop a perfect price differentiation scheme or form an indirect price cartel. The case of Dutch gas stations is an important example – different gas stations constantly changing prices in accordance with customer’s predictive needs for gas under different conditions. This was possible thanks to a “dynamic pricing” program that refreshes prices based on real time market data. What was worse was that because different gas stations used the same algorithm, it was impossible for the customers to avoid the price differentiation wherever they went, effectively forming a price cartel that maximized the company’s interest. There is no guarantee that this will not happen in Korea once AIs are set in place everywhere people go.

The vast opportunities for AI both in Korea and around the world, along with the concerns that go along with those opportunities, show clearly that we may be reaching a turning point where many conventional economic norms could change, especially for tech-savvy South Koreans.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Image created by Jenna Gibson, Communications Director, at the Korea Economic Institute of America from a photo by Nick Amoscato on flickr Creative Commons.

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Korea Unveils Ambitious Plans for “Mooncare”

By Jenna Gibson

While the United States is locked in a fierce debate over Obamacare, South Korea is going through its own deliberations about healthcare reform. On August 9, right before hitting his 100th day in office, Korean President Moon Jae-In unveiled his plan to expand Korea’s already extensive healthcare system, a proposal quickly dubbed “Mooncare.”

Korea currently provides universal healthcare through its National Health Insurance Service. All citizens are required to pay into the fund via taxes, and they are all covered for general medical costs. Private insurance does exist, and people usually purchase those additional policies to cover large medical expenses, such as a major accident or cancer treatment.

One of President Moon Jae-In’s major pledges has been to reform this system, with the particular goal of decreasing costs for low-income patients. Moon’s plan focuses on three major changes: first, he wants to expand the types of procedures covered by the state insurance to eventually encompass all medical treatment except purely optional operations such as non-medically indicated cosmetic surgery. In addition, he plans to lower the cap for out-of-pocket expenses so that low-income Koreans would only have to pay up to 1 million won ($883) per year for their medical care. Finally, he plans to increase emergency financial support for those in the lower half of the income bracket, providing them access to up to 20 million won ($17,663) in case of a major health crisis.

“We will continue to move toward building a fair and just Republic of Korea that will ache when the people ache and will only smile when the people smile,” Moon said at the plan’s unveiling. “We will build a country where every person is free of concern over medical costs and can receive treatment for any disorder without having to worry about expenses.”

However, not everyone is enthusiastic about these sweeping changes. Korea will need 122,164 more nurses, 1,613 pharmacists, and 785 doctors to implement the president’s plan, according to a report from the Ministry of Health and Welfare. And critics have balked at the 30.6 trillion won ($26.9 billion) pricetag for the plan, saying that even if the government covers the increase for now, those costs may eventually be passed back down to taxpayers. This plan fits in with accusations that Moon is becoming a “Santa Claus President” – along with this healthcare plan, Moon has already promised several major welfare reforms including a minimum wage increase and a boost for both pension and child care funding.

Supporters, on the other hand, praise the program’s ambition and its focus on helping low-income Koreans. They also noted that this increased coverage could lead to a boom in the medical and biotech industry.

Moon’s approval rating has remained high, increasing slightly to hit 78 percent in the days following his healthcare announcement. According to a poll conducted on August 18-19, 85.3 percent of Koreans surveys said Moon was doing a good job managing state affairs. According to the Korea Herald, “When asked about having a ‘medium burden, medium welfare’ system in South Korean society, 81.6 percent supported the idea, with more than 75 percent of the respondents saying they are willing to pay more taxes to expand welfare and solve bipolarization issues.”

While Moon will have to carefully manage the significant funding necessary to conduct this and other major upgrades to Korea’s social safety net, it seems he has widespread support among the Korean public to begin moving forward with his ambitious reform agenda.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Image from Republic of Korea Armed Forces’ photostream on flickr Creative Commons.

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Koreans Push Back Against Abuse of Power by Franchises

By Hwan Kang

South Korea is a country full of franchises. If you are familiar with Korean delivery food, you know that there are hundreds of franchise stores that deliver fried chicken with beer wherever you are, even when you are outside having a picnic by the Han River. There are so many franchise convenience stores such as 7-11 or CU that there is one store for about every 1,400 people in Korea. According to the Korea Fair Trade Commission (KFTC), there were 218,997 franchise branches operating under 4,844 brand names in 2015, a number which rapidly grew to 5,273 in 2016. However, due to recent events, the word “franchise” now symbolizes something more sinister than convenient.

The problem first surfaced when the heads of several major franchise brands were caught up in scandals. In the case of Mr. Pizza, one of the beloved pizza brands in Korea, the former chairman was accused of embezzling company money for personal use, such as commissioning an expensive portrait of himself. This revelation upset people even more because the business was also accused of sabotaging its former franchisee by opening a shop near his store and providing the same menu at lower prices. This vengeance eventually drove the former member to commit suicide.

In addition, BBQ, a major chicken brand in Korea, went under KFTC’s investigation for allegations that the brand has demanded high prices for the ingredients the franchisees use. Apparently, the subcontractors were all the CEO’s relatives, raising accusations of nepotism. These are only two examples among many reports of misconduct among Korea’s major franchises, including sexual harassment and verbal abuse.

Although these scandals seem to be more concerned with the business owners themselves, Korean customers are willing to share their anger with the companies more broadly. One of the reasons is that franchisees are often perceived as socially weaker people, or the “eul(을)”, who are oppressed by the stronger franchises, the “gap(갑)”. Koreans have become more wary of people who act as a “gap” to “eul” because of the country’s growing disparity in economic status, and these incidents have fueled that resentment.

Gap Eul

This perception gets stronger if you consider the fact that the franchise branch is often an enticing option for early retirees with little money. Since it has become hard for the Korean baby boomers to stay in their jobs, the average retirement age has gotten younger, down to 52.6. This is about ten years younger than the average retirement age in America. These relatively young retirees have to live thirty more years, so some decide to invest their severances in opening a shop to compensate for their low pension income. This explains why there are so many people running their own businesses — amounting to about 21 percent (5.5 million) of the employed in Korea. This has become a phenomenon that Koreans consider both depressing and a good subject for satire. It is not unusual to see this trend used in a meme like ‘chicken shop owner who can also fix computers’. These early retirees rely on franchise brands to minimize the risk of running the shop on their own, considering that the brands help provide education and quality control. Therefore, when the Korean public found out franchise brands are not what they seem to be, they took it personally.

That is why the Moon administration is keen to solve the innate problem underlying these franchises. The president has proclaimed that he will solve the economic disparity issue and put an end to the act of “gap”. The KFTC, under Chairperson Kim Sang-Jo, has stated that it will take measures to look into unfair policies among franchise brands. The main points include transparency in accounting, improving the rights for the franchisees and increased vigilance on the misconduct of the franchises. The KFTC has created a joint committee with the Korea Franchise Association to put these measures into effect. Seoul, in cooperation with KFTC, has also decided to receive complaints in response to the growing concern, and will provide legal assistance when needed. Franchises such as BBQ will disclose their margins to follow the KFTC’s regulations and possibly earn back the trust of its consumers.

Despite these efforts, there are still obstacles for the struggling franchisees ahead. One of the obstacles is the lack of trust between the joint committee and the franchisees. Both sides have yet to fully cooperate in putting the measures into effect, with the Franchisees Association expressing skepticism about the joint efforts. Another obstacle is the rising minimum wage, which the Moon administration is quite firm on implementing. The government decided to increase the rate by 16 percent, and many of the self-employed people, including the franchisees, are concerned it might lead to higher costs in their businesses. The Moon administration will have to carefully balance these competing interests as they work to improve the situation for struggling franchisees.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Photo from Meryl Ko’s photostream on flickr Creative Commons.

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Korea’s New Craving for Kakao Bank

By Hwan Kang

Kakao Bank launched its internet-only banking service on Thursday, July 27, meeting unprecedented enthusiasm from Korean users. Within first 8 hours of its unveiling, customers created more than 100,000 bank accounts. After only five days, the number of accounts surpassed the one million mark and then further broke the record by reaching two million thirteen days after the launch. That is approximately 6,400 new accounts per hour. The bank’s cute Kakao Friends debit cards are also said to be out of stock, with one million users applying for their favorite character cards.

The bank’s popularity naturally led to massive active transactions, with 653 billion won ($579 million) being deposited and 497 billion won ($441 million) being loaned to users in just one week. Kakao Bank’s power as a new challenger in Korea’s financial market is so strong that other major banks are quickly rectifying their services to keep up.

Kakao Bank Graphic

Why the sudden popularity? After all, Koreans are probably the most IT-accustomed people in the world. Another internet-only bank, K-Bank, launched earlier this year and it took 100 days for them to gather 400,000 account users. It also took four months for the bank to achieve similar amount of deposits and loans as Kakao Bank. Convenience is the key to the bank’s runaway success – Kakao Bank focuses mostly on providing user friendly mobile services by reducing the hassle of having to go through rigorous procedures to open an account or borrow money. To create your first account, all you need to do is log in with your Kakaotalk ID and confirm your identification with your phone number via text message. Considering that about 84 percent of the population in Korea uses Kakaotalk daily, almost anyone with a smartphone can create an account without additional effort.

This process eliminates the painful procedure of dealing with Active X, an outdated way of installing security programs that only Windows users can download, and then having to get a special financial certificate issued, which takes another half-hour. It is also much easier to get immediate cash if you have an account with Kakao Bank. The bank boasts that it takes only 60 seconds to borrow up to 3 million won ($2,655) without any paperwork. The cash will be available on your debit card with daily interest of up to 273 won, less than a quarter a day in U.S. dollars. All of these services are something that internet banking services like K-Bank could not provide before in Korea.

However, that does not mean that the bank is giving up on price competition. It currently offers a higher interest rate for deposit accounts (2.0 percent per year), which is 0.2~0.9 percent more than other major banks. Its loan interest is relatively lower than other competitors as well with a 2.84~9.80 percent rate and no prepayment penalty, which is 0.5 to 2.7 percent lower than other major competitors. In terms of fees, they do not charge anything to send money regardless of the bank, and wiring fees are cheaper than other similar services (5,000 won, or $4.40). Kakao Bank also decided not to charge any withdrawal fees from all ATM machines until the end of the year as a promotional event.

Kakao Corporation’s recent efforts to expand into the fintech area mirror similar moves by Tencent and Alibaba in China. Both companies are pioneers in the mobile payment system in China, implementing QR codes to make daily transactions with smart phones easier and ironically driving the communist society to develop the most advanced electronic monetary system. The two companies competitively increased their market dominance almost to the point that QR code payment is quickly replacing conventional methods of payment such as cash or credit cards.

In the case of Tencent’s WeChat Pay, WeChat messenger was the catalyst for increasing its user base in China, while its internet-only bank WeBank supported users with easier access to bank accounts. The two Chinese fintech giants are now turning their eyes toward other countries, investing in Southeast Asia and the U.S. while striving to support other currencies and expand their services.

It is safe to say their ventures have now reached Korea. Tencent and Alibaba each has major shares in Kakao Bank and Kakao Pay, Kakao Corporation’s payment service. It is no coincidence that both companies are backing Korea’s biggest mobile platform as it launches Kakao’s equivalent of WeBank and Alipay. This way, Tencent and Alibaba can recreate their success in China and perhaps connect China and Korea in a ubiquitous QR code system. With such support, Kakao Bank will have great power in the consumer market, maybe even more so than in than China considering that Korea has a denser population that is already familiar with smartphones.

Of course, behind Kakao Bank’s success is skepticism that the hype will only be temporary. One of the most critical shortcomings that the bank has to overcome is its lack of verification system for foreigners living domestically and abroad. Foreigners usually use alien registration cards or passports for identification in Korea, but Kakao Bank, along with other banking services, does not provide means to confirm it online. While it is hard to confirm whether the problem lies in the bank itself or with government regulation, it will definitely raise questions for the bank, whose strongest appeal is its ease and convenience. This obstacle is particularly unfortunate given that it can ease transactions for foreigners who are not yet accustomed to spoken Korean.

Another shortcoming that is causing doubt is the bank’s financial stability. Because it is so convenient to borrow money, users are actively getting loans from the Kakao Bank up to the point that its loan-to-deposit ratio has reached 94 percent. If people decide to borrow more money than they have deposited, the bank might face a shortage in capital. A report from the Korea Institute of Finance noted the reason some other internet-only banks failed was because of riskiness in managing their assets. They may have had the advantage in attracting customers, but poor investments and unreliable deposits ultimately undermined their long-term profitability. Kakao Bank claims that it has no plans to stop their loan services, but they have set new limitations on the total amount of money customers can borrow. Meanwhile, Kakao Bank is also trying to avoid this kind of situation by raising more capital through new shares.

Although it is still unclear whether Kakao Bank will remain a major contender against Korea’s conventional banks, Koreans are no doubt drawn to it because of Kakao Corporation’s reputation of going against the norm. It has already proven other banks wrong by providing better service and accessibility with reasonable interest rates. It has in turn driven its competitors to follow Kakao’s example and reminded them that tech complacency will not be an option in the future.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Photo from badtaste64’s photostream on flickr Creative Commons.

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The Growth of the Korean Adoptee Community and Its Impact on Adoption in South Korea

By Patrick Niceforo 

Since the end of the Korean War, more than 200,000 children from South Korea have been adopted around the world. A crowdsourced map shows Korean adoptees in the United States, Norway, and Australia, among other countries. With the peak of overseas Korean adoption in the 1980s, it is unsurprising that Korean adoptees have had a greater media presence in the past several years being featured in books, television shows, and news articles. As Korean adoptees came of age, they developed a community to connect and exchange stories and information. This blog will explore the Korean adoptee community and how their return has impacted overseas and domestic adoption in South Korea.

The Korean Adoptee Community

The mobilization of the Korean adoptee community in the United States in 1999 paved the way for many of the benefits and opportunities that international Korean adoptees enjoy today. For example, in the 1990s, the RoK government recognized international Korean adoptees as “overseas Koreans,” which granted international Korean adoptees access to the F-4 visa. The F-4 visa grants Korean adoptees access to a wider scope of employment opportunities and multiple-entry over a 2-year period.

There are also many organizations that connect and provide information to Korean adoptees who are interested in Korean culture or returning to South Korea. International Korean Adoptee Associations (IKAA) has hosted gatherings of Korean adoptees around the world since the first one in 1999. The 2017 gathering is to be hosted in San Francisco this October. There are also smaller organizations for Korean adoptees at the state and city level that are accessible on social networking sites. Other organizations such as Asia Families and Heritage Camps cater to a younger audience by hosting Korean culture programs.

Organizations such as International Korean Adoptee Service Inc. (InKAS) and Global Overseas Adoptees Link (GOAL) provide information and services related to motherland tours, birth searches, and Korean language classes. There are even guesthouses in South Korea such as Koroot, which provide cheap rooms and communal meals and whose stated mission is “to help adoptees’ identity-building and raise social awareness of overseas adoption issues in Korean society.”

In recent years, international Korean adoptees have seen more exposure in the media. Stories like the reunion of Korean adoptees Samantha Futerman and Anais Bordier, identical twins separated at birth, are well known among the Korean adoptee community. The Korea Joongang Daily recently published an article that detailed one Korean adoptee’s success in opening a Mexican restaurant in Itaewon. However, while international Korean adoptees have more resources and support than before, many challenges still remain.

Recent Trends and Developments in Korean Adoption

KEI published a blog about adoptees in early 2012 that covered the history, recent trends, legislation, and social issues of international Korean adoption. Since then, the Korean adoptee community and overseas adoption in Korea has seen many changes.

Many Korean adoptees such as Adam Crasper, despite growing up in the United States, have been deported to Korea. Although a law passed in 2000 automatically grants international adoptees American citizenship, it does not cover people who were 18 or older at the time that it was passed. Adoptees deported to Korea often cannot function in Korean society due to the language barrier and cultural divide.

Some adoptees such as Jane Jeong Trenka have pushed to end the practice of overseas adoption. In 2012, Korean adoptee activists succeeded in passing the Special Adoption Act, which aims to reduce international adoption. In addition to mandatory birth registration and the mother’s consent to adoption, the law also grants birth mothers the ability to reverse adoptions within six months of their application while also requiring birth mothers to spend a certain amount of time with their newborn prior to adoption.

Adoption Graph 1

While it is difficult to say to what extent the Special Adoption Act has reduced overseas adoption, it is clear that the adoption rate has gone down. In 2003, over 2000 Korean adoptees were sent overseas. In 2012, 755 were adopted. As of 2016, only 340 were adopted. Korean Adoption Services has a more comprehensive collection of Korean adoptee statistics here.

Adoption Graph 2

However, the Korean adoptee community is split on the issue. Some have suggested that the Special Adoption Act has led to an increase in abandonment and that eliminating overseas adoption merely treats a symptom of a social problem. Others contend that adoptees should have the opportunity of being raised in their native culture. Another relevant point of data is the number of children in need of welfare, which was nearly 5,000 as of 2015. In other words, the total number of adoptions in South Korea is well under the recorded number of children who require assistance.

It may be difficult for South Korea to completely eliminate overseas adoptions in the near future. While recent changes such as the Special Adoption Law and the Hague Convention on Intercountry Adoption facilitate adoptions to healthy and supportive homes, South Korea could do more to promote and boost domestic adoption. A start could be providing more financial and social support to single mothers.

Patrick Niceforo is a graduate student at the Middlebury Institute of International Studies and a former intern at KEI. The views expressed here are the authors’ alone. 

Photo from James Kim’s photostream on flickr Creative Commons.

 

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One Small (and Medium) Step for Korea’s Economy

By Nathaniel Curran

The future of Korea’s economy may depend on SMEs (Small and Medium sized Enterprises) just as much as it does on the large traditional companies, the chaebol.

The Moon administration has already announced plans to boost support for SMEs, and while the success of the initiative remains to be seen, it raises important questions about the future of Korea’s economy.

Korea’s economy today is almost synonymous with the chaebol, the enormous, family owned and vertically integrated conglomerates that possess large market share in major global industries like shipping, electronics, and automobiles. In 2015, sales revenue from the five largest chaebol accounted for almost 60% of Korea’s GDP. Samsung and its subsidiaries alone account for roughly 20% of Korea’s economy.

It’s easy to understand the public and media fascination with the chaebol; they have been hailed as an important driver in South Korea’s rapid economic development, known as the “Miracle on the Han.” The seemingly symbiotic relationship between the chaebol and the government has been hailed as both dirigisme par excellence, and as crony capitalism. But regardless of one’s opinion of the chaebol, it’s undeniable that from their humble beginnings under Japanese colonial rule, the chaebol have shown remarkable resilience as the world has changed around them.

Perhaps the greatest threat to the chaebol’s survival came in 1997 during the Asian Financial crisis, during which 97% of chaebol went into bankruptcy. Despite the blame they attracted for causing the crisis, the chaebol emerged from the 1997 crisis largely unscathed. Although the subsequent IMF bailout led to significant restructuring, the chaebols’ modus operandi of family control, high debt ratio, and opaque operating structure remained largely intact. In fact, the chaebol were able to take advantage of IMF mandated restructuring to fire approximately 40% of their employees, who could then be rehired as part-time employees.

In the shadow of the Chaebol

However, the Western media’s focus on the power of the chaebol has served to obfuscate another important facet of Korea’s economy/economic development: SME’s (Small and Medium-sized Enterprises). While the chaebol have captured the lion’s share of attention -and treasure- in Korea, SMEs played, and continue to play, a vital role in Korea’s economic narrative.

Korea today boasts 3 million micro-enterprises (businesses that have fewer than 10 employees). Furthermore, SMEs account for roughly 37% of exports, which is especially impressive when one considers that fact that Samsung alone accounts for a whopping 30% of exports. Furthermore, employment continues to rise at SMEs, all the while accompanied by a growing popular sentiment that the interests of the Korean people are not being well served by the chaebol’s business activities.

The future of SMEs

SMEs may have found a champion in President Moon, who has repeatedly pledged to help spur entrepreneurship.  In this vein, the administration has already created a ministry for SMEs and startups. This is a promising sign, as the best way to deal with the chaebols’ stranglehold on the Korean economy might be less to attempt to reign them in than to directly support SMEs. After all, attempts to impose restraints on the chaebol have repeatedly failed, and despite Korea’s overreliance on exports, the chaebol likely will remain vital to a healthy Korean economy well into the future.

It in the present, it seems unlikely that Korea will be able to completely emulate Germany’s mittelstand (Germany’s innovative, tight-knit, and highly focused SMEs that play a leading role in the economy). That being said, diversification away from the chaebol would still be useful. For decades the chaebol enjoyed privileges and government support that make it difficult for SMEs to compete in today’s neoliberal environment of unregulated markets. Putting investment into SMEs would help spur innovation and much needed domestic competition. There is certainly widespread support for such measures, as the chaebols’ interests seem decreasingly to parallel state economic and social objectives.

It won’t be easy to steer Korea away from over-dependence on the chaebol, especially when the idea of working at a chaebol has become such a deeply ingrained dream for most young Koreans. Wages at the chaebol continue to outpace their SME counterparts. There are promising signs, however: not just the Moon administration’s investment plans, but also a burgeoning startup scene that may succeed in attracting more young talent away from traditional salary-man jobs at chaebol firms.

An SME revolution could be just what Korea needs to maintain its competitive edge in the global marketplace in the coming decades.

Nathaniel Curran is a PhD student at USC’s Annenberg School of Communication and a 2017 COMPASS Summer Fellow. The views expressed here are the author’s alone.

Photo from Yeseul Ko’s photostream on flickr Creative Commons.

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Moon Vows to Become a “President of All People,” but Faces a Nation Divided

By Gwanghyun Pyun

Moon Vows to Eradicate “Deep Rooted Evils” of Previous Administrations

An unexpected early presidential election was held on May 9 in South Korea. This election was the result of the impeachment of President Park Geun-hye. The election was won by Moon Jae-In, who strongly argued for eradicating ‘deep rooted evils”’ in Korean society, referring to the turmoil from the former President Park. Moon largely won the support of those who protested against the Park administration, and during his campaign he praised the “candle sentiment” of the people who took to the streets with candles to protest. But while he was supported by those who protested against the administration, how will his policies tackle the issues they stood up for?

In Moon and the Minjoo Party’s official pledge book, his first pledge out of twelve is for there to be a ‘Republic of Korea without corruption,’ including the ‘eradication of deep rooted evils’ as its primary agenda. It specifically promises that the next administration would eradicate the deep rooted evils that resulted from the nine years of the former two conservative administrations. This means that his strategy during the election focused on criticizing the previous two  presidents to gain the support of those who took part in the candlelight protests. According to a poll by Gallup Korea, the reasons people voted for Moon were the “eradication of deep rooted evils” (20 percent), “regime change” (17 percent) and Moon’s “good personality” (14 percent).

A Republic of Korea where people are sovereign by finishing the candlelight revolution

Moon and the Minjoo Party decided to begin his list of  four visions for Korea with a vision of “finishing the candlelight revolution, a Republic of Korea where people are sovereign.” It suggests that during the nine years of the two former administrations, Korean society has belonged to the 1 percent of people who have vested interests in the system such as bureaucrats, the chaebol and the rich. Moon insisted during the campaign that finishing the candle revolution would bring a society where all the people are sovereign.

As the first pledge, Moon made promises to take Korean society back from the 1 percent. To do this, his administration will set up a special committee for clearing out deep rooted corruption and confiscating any wealth accumulated by illicit means. While he spoke out against the meddling in state affairs by Choi Soon-sil, a friend of the former president Park closely tied with the scandal that led to hear impeachment, Moon also promised to reform corruption among high-ranking bureaucrats, to remove the blacklist of cultural figures who supported left-wing causes, and to negate the state authored history textbooks made under the Park’s administration.

At the same time, Moon pointed out what he thinks is the fundamental reason why a small number of people have too much power –  the Korean constitution made in 1987 is outdated. Because this constitution has given prior leaders imperial presidential power, he said, Korea needs constitutional revisions to ensure balance between the presidency and the National Assembly.

The 58.6 percent who did not vote for the President Moon

Since he has focused on giving power back to the people, Moon needs to be aware of the views of the 58.6 percent of people who did not vote for him. Considering the fact that Moon’s first vision and pledges are about fixing faults from the last nine years, it seems that his victory  is more about the perceived wrongs committed by the prior two administrations than his policies on security and the economy.

During the election, Moon had two main rivals – the conservative Hong Joon-pyo and the centrist Ahn Cheol-soo, who won 23.3 percent and 21.8 percent of the vote respectively.  He also faced two minor opponents in the center-right Yoo Seung-min and the left Shim Sang-jung, who won 6.8 percent and 6.4 percent respectively.

Excluding the topic of cleaning up corruption, Korean publics opinion on other policies are polarized. Especially in terms of security policy, the three other candidates who collectively won 52.9 percent  offered a different vision for dealing with North Korea than Moon’s pledge  to inherit the ‘Sunshine policy’ that pushed for a close relationship between South and North Korea during the liberal administrations of 1998 to 2008.

The two conservative candidates, Hong and Yoo, insisted that Seoul needs to maintain a hardline stance against the North, including deploying tactical nuclear weapons in South Korea. The main candidate, Ahn, said that without North’s denuclearization first, there cannot be any cooperation with North Korea. Furthermore, these three candidates support the deployment of THAAD, while Moon argued that the THAAD deployment decision should be left to the new administration.

When it comes to economic policy, Moon insisted that the government should lead the creation of job opportunities, and has set a target for creating 810,000 new jobs in the public sector. In contrast, his three main rivals argued that private sector should lead job creation and criticized Moon for having no proper plan to budget for the 810,000 jobs he wants to create.

But while Moon Jae-in may face these splits on economic and security policy, particularly among those who did not vote for him, he has acknowledged the need to bridge divides. In his inaugural address, Moon said “I will become a president of all people. Each person who did not support me will still be my people and I will serve them as such,” highlighting the nation’s integration. It will be an important task for him to address the faults of past, but he must also work to overcome the current divisions in society and bring the nation together.

Gwanghyun Pyun is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Sogang University in South Korea. The views expressed here are the author’s alone.

Photo from Republic of Korea’s photostream on flickr Creative Commons.

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What Do North Koreans Do for Fun?

By Rose Kwak

It is hard to picture what North Koreans do for fun in a country notoriously known for human rights violations against its people, where seventy percent of the population is food insecure and its people are constantly indoctrinated by the state.  However, despite many bleak and dark images surrounding North Korea, many North Koreans enjoy various forms of entertainment—ranging from taking families to dolphiariums in Pyongyang to inviting friends over for karaoke.

Behind closed doors, many North Koreans also take pleasure in watching South Korean dramas and movies, which is prohibited by the state but easily accessible through video recorders and CDs in black markets. While recreational activities and access to these entertainment venues is largely dependent on socio-economic class and regions, South Korean media is consumed by North Koreans across a wide range of socio-economic gradients. The following are types of entertainment cultures thus far known in North Korea.

Amusement parks and entertainment venues:

Since Kim Jong-Un came into power, Kim has been working toward “improving the lives of his fellow millennials” and has ordered constructions of various entertainment venues. There are quite a number of other large amusement parks across the city such as Kaeson Youth Park and Manyongdae Fun Fair, to name a few. In a power-starved country where the satellites reveal pitch black images by night, Kaeson Youth Park facilities are lit like “Times Square.” Kaeson Youth Park covers more than 400,000 square meters and holds various rides for families and friends to enjoy. Munsu Water Park is another recreational park for families and it includes about 26 pools. The Mirim Riding Club offers horse-back riding for eight dollars per hour outdoors and ten dollars per hour indoors.

In 2012, Rungra People’s Pleasure Ground was opened to the public by Kim Jong-un and his wife Ri Sol-ju at the opening ceremony. Rungra People’s Pleasure Ground offers exciting and varying options for family entertainment including a dolphinarium, water parks and a mini-golf course. There are also ice-skating rinks and ski resorts for those who could afford. Generally, these amusement parks and grounds are reserved for the ten percent of North Korea’s elites.

Drinking, Dining and Dating Culture:

When it comes down to dating and sex, North Koreans are extremely conservative. Dating is strictly forbidden on university campuses, albeit many young couples find a way to go on dates and to enjoy each other’s company. Outside of campus grounds, many young couples go to restaurants that serve tasty meat or go to jangmadang (markets) to shop for small goods, as well as to visit a nearby mountain trail, river side or beach. While average North Koreans cannot afford luxury items, in recent years, many North Korean couples have started to wear matching tokens or jewelry like the South Korean counterparts. Social clubs are another way in which young women and men meet one another. During holidays, social clubs are hosted for masses and dance parties take place in various places such as Kim Il-Sung Square.  Because North Korean men go to military for ten years after high school, most serious romantic relationships develop in the late twenties, often times through blind dates set up through relatives and close friends.

In recent years, there seems to be an increase in demand for restaurants and bars. For average North Koreans, meals usually consist rice and a few side dishes. However, the elite few in Pyongyang tend to revel in lifestyles that poses stark contrast with those of the rest. One journalist reflecting upon this flashy lifestyle explained that this small privileged class known as the “donju”(translated as “masters of money”) are living a cosmopolitan life in “Pyonghattan.” They would spend ten to fifteen euros equivalent per meal to indulge in expensive prime steak or Wiener schnitzel and wear clothes from brands like Zara and H&M.

Another prominent aspect of North Korean recreational life is “eumjugamu.” “Eumjugamu” in Korean is a combined word for “drinking, music, and dancing.” While most North Koreans can’t afford hard liquor like tequila, about eighty to ninety percent of North Korean men drink on daily basis. Average North Koreans drink state-produced alcohol such as Yangdok-sul or Taedonggang beer. Many North Koreans in the countryside brew their own beer with corn or fruits (known as nongtaegi) despite the fact that this is illegal. Unlike their South Korea counterparts, house parties are also fairly common in North Korea. Wealthier elites have karaoke machines to enjoy.

South Korean media consumption:

Consumption of South Korean media is a form of entertainment not just exclusively reserved for the elites. The reason is that many North Koreans are able to obtain video recorders and DVDs illegally through black markets. Especially in Chinese bordering provinces like North Hamgyong, people are able to watch South Korean broadcasts through their television. In other areas, North Koreans are able to obtain South Korean entertainment CDs and DVDs. A defector who lived in Yanggang Province explained that people rent CDs that contain popular South Korean dramas. Many North Koreans also watch South Korean dramas through video recorders that are sold by Chinese merchants or at black markets. Within trusted circles of friends or relatives, many even watch dramas together. The impact of South Korean media consumption is great enough to have affected people’s lingo as North Koreans began to adopt words only used in South Korea.

According to an InterMedia survey of North Korean refugees, approximately 33 percent of North Korean defectors claimed that they had access to and listened to foreign radio. About 47 percent were able to obtain free-tuning radio from the black market and about 23 percent through Chinese merchants. A survey of North Korean defectors revealed that approximately 98 percent of USB owners kept South Korean dramas and/or music. Through “passive dissemination” and “inter-personal distribution,” South Korean TV is becoming rather popular in North Korea.

Kim Jong-un recently launched a North Korean Netflix-style service called Manbang that enables people to re-watch documentaries about their leaders as well as to learn Russian and English. Manbang supposedly offers five channels that show state-sanctioned news and educational programs.

Rose Kwak is an intern at the Korea Economic Institute of America and a graduate of Davidson College in North Carolina. The views expressed here are the author’s alone.

Photo from Stefan Krasowski’s photostream on flickr Creative Commons.

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Table for One?: How Dining Culture Is Changing in South Korea

By Gwanghyun Pyun

One of things you might observe when you visit South Korea is that there are very few people who dine alone. In Korean dining culture, all family members have breakfast and dinner together at their house. It is also common for children to have lunch with their classmates at school and workers to have lunch with their coworkers. Furthermore, many Korean companies regularly hold ‘company dinners,’ which every worker is encouraged to attend to help develop company unity. Eating together is so common in Korea that those who dine alone can be seen as having few friends or lacking social skills.

However, the number of Korean people who dine alone at home and work is increasing. Although Korea has a strong dining-together culture, more people are starting to accept the idea of dining alone. Korean people call this dining alone behavior ‘honbap’ (“hon” means alone and “bap” means meal in Korean). Korean media commonly attribute the increase in the ‘honbap’ trend to changes in the Korean society – including the fact that society is becoming more competitive as well as the growth of individualism and an increasing number of single-person households.

At first, the ‘honbap’ trend became popular among university students who were under high levels of stress due to competition in the job market. It is difficult for university students to plan meals with friends. They are often too busy making themselves more marketable by preparing for job tests, improving their language skills and engaging in the community service activities that are major requirements to get a job. Many students started to consider dining together a waste of time and money and realized that dining alone is more convenient.

Korean office workers face similar challenges. Even after getting a job, they face fierce competition for promotion or survival in the work place. Some of them want to save lunch time by eating alone and then use lunch time for building their professional development such as learning English, studying skills related to their professional area and taking certification courses. Professional development has become so important that some language institutes have offered lunch time classes that serve a light lunch. Thanks to this trend, many restaurants began catering to a growing market of solo-diners. Most restaurants in Korea in the past had menus and tables set up for group customers, to the point where people could only order food in portions for two or more people. But now many restaurants have rearranged table formations as well as menu in order to accommodate solo diners.

The ‘honbap’ trend has also become popular in people’s homes due to the increasing number of single-person households. According to Statistics Korea, single-person households accounted for about 15.5 percent of the total population in 2000, but increased to 27.1 percent in 2015. Among single-person households, 91.8 percent of them tend to dine alone. This change has affected all ages, mainly due to the delayed marriage age and increasing divorce rate. Since the number of single-person households has increased, it has become less common to see all family members dine together every day like they used to.

The cultural transition from collectivism to individualism in Korean society has also contributed to this trend. According to Professor Kwak Geum-ju at Seoul National University, people feel so tired of meeting others that they prefer to spend more time alone. This is because when they have meals together, they must take others’ food preference, daily schedule and even financial situation into consideration. In addition to their busy lives, Korean people have also become tired of Korea’s collectivist culture, resulting in more people deciding to dine alone.

Now, not only do Korean people dine alone, but also they drink, watch movies, and sing karaoke alone. Professor Jeong Do-un at Seoul National University explained that the dining alone phenomenon means that Korean society is gradually shifting away from a group-based society. Many Koreans are realizing that they do not need to spend their time and money to blindly maintain groups, and instead can focus on their individual lives if they choose to.

The ’honbap’ trend also has some downsides. For example, some people choose to eat alone out of convenience. Others, however, are compelled to eat alone due to their small social network or even insufficient finances. For them, ‘honbap’ means that they do not have a person to communicate with or cannot afford social activity. In addition, there is  research that shows people who dine alone tend to have poor health due to irregular meals and social phobia. The fact that the trend is based to a certain extent on the increasing number of single-person households and on competitiveness in society         hints at the some of the negative aspects of this trend.

Compared to many Western cultures, eating alone is a concept that is rather foreign to many Koreans. Nevertheless, ‘honbap’ behavior is a rapidly growing trend that is changing dining culture in Korea. According to a survey by Ministry of Agriculture, Food and Rural Affairs, 56.6% of the respondents said they have dined out alone. And people who belong to single-person households, which make up 27.1% of total households, must eat alone at home every day. Many have come to an understanding that dining alone is not a strange behavior but part of a reasonable lifestyle for those who choose it for their own convenience. But Korean people should keep in mind that they also need to maintain balance between convenience and social life.

Gwanghyun Pyun is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Sogang University in South Korea. The views expressed here are the author’s alone.

Photo from Guian Bolisay’s photostream on flickr Creative Commons.

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Korea Loses Spot as Third Largest Sender of Students to the U.S.

By Jenna Gibson

In 2016, South Korea officially dropped from the third largest source of international students in the United States to the fourth largest, now sitting behind China, India, and Saudi Arabia. The gap is small – Saudi Arabia sent just 280 more students than Korea in 2016 – but with the number of Korean students in the United States on a downward trend, that gap may widen in the coming years.

Korea has been the third largest source of students studying in the U.S. since 2002, when it surpassed Japan (which has since dropped to ninth place). Up until the late 2000s, the number of Koreans choosing to study in the United States was growing. But the number has dropped from a high of 75,065 in 2008 to 61,007 in 2016.

The number is still impressive – second place India is about 26 times bigger than Korea, but sends only 3 times as many students to study abroad in the U.S. The problem is that the number of Korean students choosing to come to the U.S. has been steadily dropping, a trend that is likely to continue.

A 2015 KEI blog attributed the decline in study abroad to economics – “With rising costs overseas and a stagnant economy at home, more Korean students are choosing to stay put.” Considering that since then youth unemployment has continued to set records, leading to widespread pessimism among young Koreans – it’s unsurprising that the downward trend has continued.

Student Enrollment Colored

Interestingly, the total number of Koreans studying abroad has actually held steady at around 220,000 since 2014. It’s the geographic spread that has seen the biggest change – in 2016, China surpassed the United States for the first time as the biggest destination country for Korean students.

Many of those students are taking advantage of the fact that China is a relatively close and relatively cheap option for short-term study programs – 65 percent of Korean students in China were taking language or other educational courses. In comparison, the vast majority of Korean students in the United States (85 percent) were enrolled in a full undergraduate or graduate program.

International students are a huge boon to the United States both intellectually and economically – according to the U.S. Department of Commerce, tuition, fees, and living expenses from Korean students added $2.3 billion to the economy in 2014. The United States would do well to invest in advertising and scholarship programs to keep Korean students interested in choosing American schools for their study abroad experience.

 Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Tulane Public Relations’ photostream on flickr Creative Commons. Graphic by Juni Kim, KEI.

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About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.