South Korea, The Energizer Country

OK, for a change we’re not going to talk about IT.

It was quite a month, three trips mashed into one. A family trip out to the west coast to celebrate mother’s 94th birthday morphs into a business trip, visiting clients and prospects throughout Asia/Pacific. Seoul, Taipei, Hong Kong, Singapore, Kuala Lumpur, and Australia. Economies in various states of maturity. Asian sense of organization – there are lots of people, for which infrastructure and systems were well designed to handle. You get food And drinks, even on 1-hour commuter flights. No delays – well, except for the Hong Kong – Singapore leg which was on United (the power went out just before we were supposed to push back from the gate).

As for the third trip, when this whole thing was booked last spring, the recession was in its nadir and Quantas direct flights between New York & Sydney were dirt cheap. With the logic of when the heck else would we ever find ourselves out there, we tacked on about 10 -1 12 days and made the last part a family trip.

A few highlights. Arriving in Australia after a red eye from “Asia” was a bit anticlimactic; you go most of the way around the world, traversing exotic cultures and cities, only to find out that you’re practically back “home” in a western nation. Call it Canada with a better climate and a sense of humor. Nothing exotic except for the flora and fauna. A prosperous country that doesn’t realize how good it has. A country with the land mass and natural resources (except water) on par with the states, but with only about 5 – 10% of the population. No wonder they’ve already figured out how to do national health care; Oz (Australia) can easily afford it.

Australia is a prosperous country with the optimism that there are better days ahead, mate. When things are going well and you don’t have to worry about freezing your as off, it’s easy to laugh about life’s absurdities. Australians are happy to be in Australia.

Changdeokgung Palace

Cut to the chase. The most surprising place was our first stop in Asia. We spent nearly 4 days in Seoul. Until now, the closest we got was Little Korea, the block of West 32nd Street between 5th and 6th (just below the Empire State Bldg.).

Of all the places we visited in Asia, Korea was the one where the least English is spoken. That’s in spite of the US historical presence (which made South Korea, and its economic miracle, possible), and the fact that most of the signs are in English as well as the local language. Korea is off the beaten track for westerners, and as a tourist destination, draws Asians to its flea markets. On its present course, however, Korea isn’t going to be such a shopper’s bargain forever.

Korea is A Tale of Two Cities, err… countries. It’s the golden age for the South, while it continues to be the Dark Ages up north; a glance at a nighttime map of the world clearly demarcates the boundaries of North Korea. Seoul (which is promoted as The Soul of Asia, as if anybody could understand what that really means) is barely 30 miles from the DMZ, but you’d never know it. In fact the 8-lane airport freeway ends abruptly in the northern suburbs; where the airport bus got off was barely even half the distance from the frontier. The freeway’s abrupt end also signifies that the country seems like it’s still under construction – sort of the throwback to the US in the 60s. Save that thought.

Back to the golden age, South Korea is booming – they’ve hardly been touched by the global recession. If you’re looking for a better indicator close to home, forget the ma and pa shops of Little Korea, head to the Samsung showroom at Time Warner Center in New York. Inside Manhatttan’s premier upscale shopping mall, Samsung has a store that sells nothing but image. You can’t buy anything at The Samsung Experience, but you can gape at all the cool 100-inch flat screens and multi-function mobile devices. A few years back, Samsung was a second tier consumer electronics supplier whose products were primarily found in off price stores. They made their strategic thrust in LCD, while Sony, the previous high end TV brand, was caught napping. Today, Samsung, not Sony, supplies the panels for Sony’s Bravia flat panels in addition to their own brand. Along with Sharp (Aquos), Samsung has cornered the high end of the flat panel market.

Samsung is a parable of the Korean economy. They are positioning themselves as the higher quality alternative to China in manufacturing. That has fueled a boom that is now manifested in the Seoul metro area, which has become one of the world’s largest construction sites.

Back to the US in the 60s thought; we were building the modern infrastructure that is now, after years of disinvestment, falling apart. Case in point: the DC Metro. When it was built in the 70s, it was considered a state of the art transit system. Decades of disinvestment later, the Metro was the site of the nation’s worst transit accident since the Malbone Street wreck in Brooklyn, dating back to World War I.

Back to Korea, the question is what happens when the construction is finally completed? Korea has a bumper crop of university graduates who are aspiring for more in life beyond an office salary. Like Japan, or India’s offshore developers, their expectations are being inflated as they join the global economy. Salary levels are going to rise. The manufacturing base will get challenged by the next country that introduces new crops of engineers to the global market at an earlier point in their development. Korean needs to learn from its age-old nemesis Japan, which has never fully recovered from the inflation born of rising income from exports, that in turn fueled a real estate spiral that careened out of control. If Korea is to claim its position at the higher end of the value chain, it will have to evolve beyond manufacturing (where there will be new competition) and construction (which will flatten out once the country or metro areas have built themselves out).

Hopefully Korea can also learn from its own history. Go to Changdeokgung Palace, the palace of palaces among Korea’s royalty. The place, designed in harmony with its natural surroundings, was built in the 15th century, was regularly burnt down by invaders and rebuilt roughly every 150 – 200 years, through the present.

The common thread is resiliency; through most of its history, Korea has either been fighting or been conquered by bigger guys in the neighborhood, principally Japan, China, and after the Second World War, the Soviet Union.

So today is truly a golden age in Korean history. They have never been so prosperous or seemingly secure. North Korea could be an exurb of Seoul, but South Koreans don’t take North Korea seriously – a lot of that is denial. With the wealth so conspicuous, it’s hard to think about the what-ifs. But today the world is buying Korean (Koreans are furiously buying American at Costco but that’s another story). Tomorrow South Korea will have to reinvent itself to go higher in the food chain if it is to preserve its newly won wealth. Just like the Japanese could not play the global economy on their own terms forever.

The day of reckoning will come when North Korea implodes. It’s not a question if, but when. And that’s where you’ll see movement in the world’s political geotectonic plates.

At some point it will be in China’s interest to seek a Grand Bargain. China doesn’t care who runs the north, and in fact, the nuclear nonsense is probably not in China’s best interest. China doesn’t want North Korea to disintegrate because of the huge refugee problem and unrest that it might cause in China’s northern provinces, not to mention causing a drain on its economic development. Consequently, North Korea is not the pawn of Russia and China that Iran is. North Korea lacks useful resources (oil) and a unique strategic position that could knock the west off balance.

There a solution to the North Korea problem, but unfortunately it is one that reflects American weakness. U.S. power and influence are waning; China holds most of our debt, and for China, the U.S. is too big to fail. As an export-oriented economy, South Korea is going to get to a crossroads where it must decide where its political and economic security best lie. Given current trends, we wouldn’t be surprised if at some point China offers South Korea a Grand Bargain – acknowledge China’s sphere of influence, and get the North back.

That of course would be a continuation of old history. Korea has never been big enough to survive on its own; it has either been conquered or operated as a protectorate. It’s too small and in too rough a neighborhood to stand alone. South Korea has operated under the U.S. protection umbrella since the Second World War; it’s not inconceivable if at some point its allegiance would shift to China, especially if that would get the Northern regime out of the way.

We’ll make one more prediction. Should the Koreas reunify, it would make the German counterpart look like child’s play. West Germany inherited a nation that had the highest standard of living in the former eastern block. Yet the cost of integrating the former eastern zone into the western economic and political system has drained the country. On the other hand, South Korea would be inheriting a region that ranks with Africa as one of the worlds basket cases. No matter how rich the south is, it will be up to its eyeballs civilizing the north.