"Economic Reform
in Korea: Establishment of a Democratic Market Economy"
Advance Text of Address by
President Kim Dae-jung
of the Republic of Korea
at Stanford University
June 12, 1998
Memorial Auditorium
Stanford, California
President Casper and distinguished guests, it is
pleasure to visit such a beautiful city like San
Francisco, a city that symbolizes freedom. And it is a
great honor to deliver an address at world-famous
Stanford University. This is my second visit to this
university. I first came here in 1983 as an exile, and
today, stand before you as President of the Republic of
Korea. How can I not be deeply moved?
If I am not mistaken, Stanford University and the
Silicon Valley have made each other famous. But, if I
look at the situation closely, Stanford's influence seems
to have been greater.
It was Professor Fred Terman who gave birth to the
Silicon Valley, and it benefited greatly due to its
proximity to Stanford. Regardless of whose influence was
greater, however, close cooperation between the two has
been the indispensable factor in the Silicon Valley's
competitive strength.
I understand Stanford University has a mechanism for
the application of patents for commercialized products
created by professors and students. In such a dynamic
environment, many students are working in venture
enterprises. And many professors are managing one or two
venture enterprises or advising them.
Along with the practice of founding venture
enterprises, a valuable network has been formed between
Silicon Valley businesses and Stanford University
professors and students. I believe Korea can learn a
great deal from this and use it.
Many venture capitalists and enterprises come to the
Silicon Valley to unleash their creative talents. But
such talents do not thrive under authoritarian rule.
Under authoritarian political and social systems, those
in power give special favors and concessions to selected
businesses.
Moreover, creativity and the free flow of information
are suppressed. Consequently, abolishing authoritarianism
and realizing democracy are essential, not only for the
success of venture businesses, but also for the
development of the overall economy.
In my view, democracy and a free market economy are as
inseparable as two wheels of a cart. Both must move at
once and in synchronization for forward motion.
Historically, democracy and free market economics
originated in Britain; then Western nations, including
the United States and France, accepted them and they
traveled a successful path throughout the global
community.
Yet, Prussia – what is now Germany – and
Meiji Japan rejected democracy, and only accepted a
market economy. The resulting dictatorship and
state-operated economy ended in dismal failure. However,
after the war, Germany and Japan accepted both and have
succeeded, as we all know.
The Republic of Korea has gone through a similar
process. Since the 1960s, I served on the economic
committees of our legislative National Assembly. I
understand where Korea has come from.
For more than 30 years, successive military
governments consistently claimed that a market economy is
disorderly and free competition causes chaos; they
claimed that rapid economic growth and maintenance of
order required the government to take the lead.
The government therefore ordered specific companies to
invest in specific industries. It also ordered banks to
extend vast amounts of low-interest loans to companies
colluding with those in power regardless of their
financial health. Thus, Korean conglomerates – the
chaebols – received various concessions and were
guaranteed monopolistic profits.
Such a growth model brought temporary, superficial
economic growth. But its limits were clear. The
government-led economy not only weakened growth potential
by distorting the distribution of resources, but it also
aggravated the imbalances in the distribution of economic
rewards and strengthened the corrupt, collusive links
between politicians and businessmen. Such collusion,
combined with government-controlled financing, gave rise
to moral hazard among companies and banks.
Competitiveness deteriorated greatly, exports slowed,
foreign debts snowballed. The foreign exchange crisis
came as a matter of course.
If we are to put the Korean economy back on the right
track, we must develop democracy and a free market
economy in parallel, as Western countries have done.
Democracy and a free market economy must develop
simultaneously for Korea to emerge as a contender in the
free competition of the 21st century. This is because a
free market economy can only prosper under democracy.
In Asia, it has been fashionable to argue for an
incomprehensible concept called “Asian values.”
The argument: Asia is different from the West; democracy
is not compatible with Asian culture and, consequently,
to develop quickly, authoritarian rule is necessary. But
such an argument collapses under its own logic and has
ultimately resulted in failure. Under Korea's
authoritarian rule, it is true that there was temporary
economic growth, but such growth was short-lived.
Last year, the OECD issued two reports:
“Knowledge-Based Economy” and “System for
National Reform.” The reports conclude that the most
important factor in the age of free competition is
knowledge and that nations which manage the process of
obtaining and spreading knowledge and information will
succeed in building a competitive and efficient system.
The 21st century will be an age of information and
knowledge. Both will form the core of the economy. In a
society where knowledge and information are central,
everyone must be able to obtain information whenever and
wherever needed. And this is possible only in a
democracy.
When society stands on a solid foundation of
democracy, knowledge and information flow like water;
individual creativity is released, and the economy
progresses rapidly. Knowledge and information are not
granted only to those in power or to large corporations.
They are available to all. And only in such an
environment can the economy and culture flourish.
Last December, the Republic of Korea opened a new era
for genuine democracy by ending 50 years of authoritarian
rule through the presidential election. That moment came
about due to the ceaseless yearnings of the Korean people
for democracy. Based on democratic principles, I want to
establish a free market economy. And I want to seize upon
the current economic crisis as an opportunity for
national development.
Furthermore, I will sever the collusive links between
companies and politicians, and free banks from government
control; I will root out corruption. And I will drive
economic reform with parallel development of democracy
and a free market economy.
To that end, the Korean government will: first, free
companies from collusion with politicians and, at the
same time, insist they carry out thorough reforms. We are
pushing these reforms in accordance with an agreement
reached in the Tripartite Committee consisting of
representatives from labor, business, and government.
The chaebols have pledged to carry out five
restructuring tasks, which they are currently
implementing: 1) improving transparency by issuing
consolidated financial statements and through other
measures; 2) eliminating cross-debt guarantees among
subsidiaries; 3) improving their capital structures; 4)
focusing on core businesses and cooperating with small
businesses; and 5) increasing legal accountability of
major shareholders and managers. Laws have been enacted
to implement these five tasks. And they are being carried
out.
Second, while strengthening the social safety net for
the unemployed, the government has also increased labor
market flexibility. This includes enactment of a law
enabling companies to lay off workers. Indeed,
flexibility of the labor market is an absolutely
necessary condition for the restoration of industrial
competitiveness, as well as inducement of foreign
capital.
Third, we are resolutely carrying out financial
reform. The government has so far boldly liquidated 8
billion U.S. dollars in bad loans, and set out to close
down or merge insolvent financial institutions, leaving
only those that are internationally viable. The
government will continue full-scale reform.
Fourth, the government sector itself is participating
in the painful process of change by pursuing active
reform of ministries, government agencies and public
corporations. We have substantially downsized the
Presidential Secretariat and ministries cutting the
number of civil servants and slashing budgets.
Fifth, corruption and irregularities resulting from
collusion between politicians and businessmen are no
longer rampant, nor is government meddling in personnel
management and loan processing. In accordance with
revised laws, a legal channel for political contributions
has been established. And, as President, I will set an
example in all aspects of these reforms.
Civil servants will no longer hand out concessions
unfairly to specific companies, under pressure from
superiors. Civil servants can no longer justify
dishonesty by referring to the corruption of
higher-ranking officials.
Such reform measures are drastically changing foreign
companies' perceptions of Korea. And based on these
positive perceptions, we believe that our success, or
lack thereof, in inducing foreign investment will be the
decisive factor in our efforts to rebuild the Korean
economy.
If foreigners make substantial investments in Korea,
we will be able to repay our foreign debts, acquire
foreign managerial techniques increasing our competitive
strength greatly, improve managerial transparency,
increase exports and create jobs.
To encourage foreign investment, the government has
continually introduced bold measures. For example,
foreigners can purchase an unlimited number of shares in
Korean companies. Second, they can freely acquire Korean
companies through mergers and acquisitions. Third, they
can purchase land. And fourth, foreigners can benefit
from various tax breaks. In short, foreign and domestic
companies will receive equal treatment. I believe there
are few countries where such extensive reforms were
carried out within the first three months of the
inauguration of a new administration.
I can tell you here and now: Korea will set a good
example of an Asian nation carrying out the parallel
development of democracy and a free market economy. Korea
will overcome its crisis eventually; Korea will make
another leap forward. On this point, both the IMF and
OECD agree, as do most American economists and
journalists.
Rising from the ruins of the Korean War, the Koreans
built their economy into the 11th largest in the world.
Under corrected policy directions and with our existing
cultural heritage, advanced knowledge and deep-rooted
patriotism, we will revive the economy and join the ranks
of advanced nations.
But in doing so, we absolutely need support from
international financial institutions such as the IMF and
the IBRD, and especially from countries like the United
States. Korea is the United States' eighth largest
trading partner and an ally in the security of Asia. Many
U.S. government officials also recognize that economic
development and social stability in Korea coincide with
American national interests.
A friend in need is a friend indeed, they say. I hope
Americans will actively participate in the Korean economy
not only for our recovery, but also for your own profit.
Thank you.
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