Kei Creative Economy

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ACADEMIC PAPER SERIES

Korea Economic

Institute of America

Building a Creative Economy in South Korea: Analyzing the Plans and

Possibilities for New Economic Growth

By Sean Connell

Abstract

In her inaugural address on 25 February 2013, Korean President

Park Geun-hye announced her vision to create a Second Miracle

on the Han River through a new policy focus on developing acreave economy. Much as economic democrazaon was a

leading theme of Koreas 2012 presidenal elecon, Park has

seized on the concept of creave economy during her rst

months in oce as the core of her administraons economic

growth agenda. Though previous Korean governments have

taken steps to support Koreas transion to an advanced

innovaon-driven economy, the Park administraon has

signicantly heightened the level of priority of these eorts in

order to foster the innovaon and new engines of economic

growth that will drive Koreas future prosperity. The success of

these policies requires a focus by Korean policy stakeholders,

including government, businesses, researchers, and consumers,

on addressing fundamental challenges within Koreas innovaon

ecosystem. These include regulatory, structural, educaonal,

and cultural obstacles that constrain Koreas ability to fully foster

and ulize its innovave capacies. Geng these fundamentals

right will support Korea as it seeks to foster new industries that

will drive its future growth and compeveness. This requires a

long-term commitment beyond President Parks ve-year term

in oce, but acons can be taken in the near term to build the

foundaon for future successes.

Key words: Innovaon Policy, Creave Economy, Park Geun-hye,

Regulatory Reform, Korean Economic Policy

Introducon

What exactly creave economy means, from a pol

perspecve in Korea, remains a topic of discussion.1 Kore

President Park Geun-hye herself dened creave economyher inauguraon speech as the idea of creang new engines

growth and employment through the convergence of scien

and technology with industry, the fusion of culture and indust

and the blossoming of creavity in the very borders that we

once permeated by barriers.2 This focus on new forms

convergence of informaon and communicaons technolog

(ICT) with tradional industries, as well as culture and conte

has been a recurring theme in her statements on the crea

economy agenda. What is not ambiguous is the desir

outcome: job creaon. From the beginning, Park has arculat

the creave economy agenda as a means to achieve the goof economic democrazaon and creang new employme

opportunies she pledged to pursue, including raising Kore

employment rate to 70 percent.3

This paper examines the Park administraons creave econom

agenda and its potenal implicaons for Korea. It will rst revie

concepts of innovaon, and consideraons for approachi

innovaon within public policies aimed at promong econom

growth. It will then examine the broader economic context

Korea in which the Park administraon is pursuing these goa

and which shapes and constrains Koreas innovaon ecosyste

Following a review of some of the major acons and poliproposals introduced by the Korean government to impleme

the creave economy agenda thus far, it assesses the

Sean Connell is a Japan Studies Fellow and former POSCO Vising Fellow at the East-West Center. His paper is thesixty-second in KEIs Academic Paper Series. As part of this program, KEI commissions and distributes approximately tenpapers per year on original subjects of current interest to over 5,000 Korea watchers, government ocials, think tank

experts, and scholars around the United States and the world. At the end of the year, these papers are compiled andpublished in KEIs On Korea volume.

For more informaon, please visit www.keia.org/aps_on_korea .

Korea Economic Instute of America

1800 K Street, NW Suite 1010

Washington, DC 20006

www.keia.org

December 10, 2013




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proposals and suggests areas for the Korean government and

other policy stakeholders to focus aenon, in parcular geng

the fundamentals right and addressing regulatory, structural,

and cultural barriers to innovaon.

The Creave Economy and Role of Innovaon Policies

The term creave economy is perhaps most appropriately seen

in the case of Korea as a guiding theme for economic policies,

much like green growth was during the previous Lee Myung-

bak administraon. More signicant is the Park administraons

decision to emphasize innovaon front and center in Koreas

economic policy agenda, and its recognion of the importance

of culvang the most conducive ecosystem possible to foster

the innovaon needed to support Koreas future growth. In

examining the creave economy agenda, it is useful to consider

ways in which innovaon is dened and addressed more broadly

within the context of public policy.

The Organizaon for Economic Cooperaon and Development

(OECD) has dened innovaon as the implementaon of

a new or signicantly improved product (good or service),

or process, a new markeng method, or a new organizaon

method in business pracces, workplace organizaon or

external relaons.4 Innovaon can also be described as a

dynamic, interacve process encompassing a diverse range ofinterconnected areas, levels of society, and actors.5These include

research and development (R&D), educaon, and physical and

regulatory infrastructure, along with intangible assets such as

intellectual property (IP), organizaonal management, tacit

knowledge of human capital, workforce training, markeng, and

design. Framework policy and economic condions that shape

the innovaon ecosystem include, but are not limited to, labor

mobility, tax burdens and incenves, trade and investment, IP

protecons and enforcement, standards-seng processes,

regulatory burdens, and societal atudes. Key actors in

innovaon include government, researchers, the private sectorranging from entrepreneurial startup businesses and large rms

conducng their own R&D to the scope of nancial, legal, and

other professionals whose services support these acviesand

consumers, who ulmately determine which products, services,

and business models succeed.

Countries pursue innovaon policies to increase growth,

compeveness, and jobs.6 The complex range of factors

outlined above, coupled with the dynamic and disrup

nature of innovaon, presents policymakers with the ques

of how to design and manage innovaon policy instrumen

The most eecve role for governments to play in this proceis increasingly viewed as shaping the framework condio

within which innovaons emerge, and coordinang a

facilitang among the broader networks of actors and polic

described above, in order to foster the most conducive possib

environment for innovaon.7This is an important disncon f

a country such as Korea in which the government has at m

taken a direct, hands-on role in shaping the economy.

Entrepreneurship is an increasing area of aenon with

innovaon policies, and there is growing consensus about t

important role of entrepreneurs as carriers of innovaon

introducing innovave products, services, and business mode

The Kauman Foundaon, cing U.S. government data, h

esmated that entrepreneurial companies generated nearly

net job creaon in the United States between 1980 and 200

Perhaps signicant for Korea, recent research on Japans econom

found that from 1996 to 2006, virtually all new jobs created

Japan were by new company or foreign invested businesses

new companies, rather than established Japanese companie

The Park administraon has placed strong emphasis within t

creave economy agenda on encouraging entrepreneurship a

startup businesses, though an important consideraon for Kor

is what kind of support is most appropriate, and conducive, f

entrepreneurs and small and medium enterprises (SMEs).

The Creave Economy Agenda in Context:

Measuring Korean Innovaon Capabilies

Korea has successfully made the leap to becoming an advanc

economy that today rates highly across several internaona

recognized indicators and measures of innovaon. For examp

Korea is now the worlds fourth-largest source of triad

patents, an important indicator of the quality of its innova

capabilies. Koreas gross domesc expenditure on R&D

2010 was equivalent to 3.7 percent of its gross domes

product (GDP), one of the highest levels among OECD memb

economies. Korea is a prolic source of ICT-related paten

and Korean companies including Samsung and LG Electron

are global leaders in this sector. Home to one of the world

most networked sociees in terms of ICT, Korea has one of t

strongest internet infrastructures of any country. The ICT sect


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4

Structural Composion of BERD, 2009 or Latest Year AvailableAs a % of total BERD

Source: OECD, ANBERD Database, April 2012; OECD MSTI Database, June 2012; OECD, RDS Database, June 2012

100

80

60

40

20

0

Industry

High-tech manufacturingSMEs

High-knowledge

market

Large rms

Low-knowledge

services

Services

Medium-to low-tech

manufacturing

OECD median OECD median (2005) Korea 2005Korea

Notes: SMEs data do not include rms with no employee.


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Revealed Technology Advantage in Selected Fields, 2007-09Index based on PCT patent applicaons

Source: OECD, Patent Database, February 2012

28.42.0

1.5

1.0

0.5

0.0

5.5 8.8

% of PCT patent applicaons

led by universies and PRIs

Bio- and nano-technologies ICT Environment-related

technologies

EU27KoreaOECD median Korea (1997-99)

Notes:

Data relate to patent applicaons led under the Patent Co-operaon Treaty (PCT), at internaonal phase. Patent counts are based on the priority date, the

inventors country of residence and fraconal counts.

The revealed technology advantage index is calculated as the share of country in patents led in a given eld relave to the share o f country in total patents.

Only economies with more than 500 patents over the periods are included in the gure.

Overview of naonal innovaon policy mix, 2010

Source: OECD, MSTI Database, June 2012; OECD RDS Database, June 2012; NESTI data collecon 2010 and 2011 on R&D tax incenves; Van Steen, J.(2012), Modes of Public Funding of Research and Development: Towards Internaonally Comparable Indicators, OECD STI Working Papers, June.

University-centred (1)

Basic research oriented (1)

Civil oriented (2)

Generic (2)

Instuonal block funding (3)

Support to business R&Dand innovaon (4)

Direct funding of business R&D (5)

Public Research

Korea 2005 Korea (1997-99) OECD sample median

0/100 25/75 50/50 75/25 100/0

Public Support to business R&D innovaon

Notes:

For 2011, public expenditure on civil-oriented research is a naonal esmate or projecon.

Esmates of R&D tax concession are drawn from NESTI data collecon 2010 on R&D tax incenves.

For 2005, public R&D expenditure excludes R&D in the social sciences and humanies.

0/100 25/75 50/50 75/25 100/0

Public lab-centered (1)

Defence oriented (2)

Themac (2)

Project-based funding (3)

Support ot public research (4)

Indirect funding of business R&D (5)

Applied/ experimental

research oriented (1)


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As shown in these gures, Korean R&D is heavily weighted

towards applied research, rather than basic research. In 2009,

71.1 percent of Koreas R&D was funded by the private sector,

primarily large companies, which also conducted 74.3 percentof Koreas R&D.11 Eighty-eight percent of Korean R&D was in

the manufacturing sector, 48 percent of which was in the single

category of radio, television, and communicaon equipment.

R&D acvity by Korean public research instuons and

universies, venues where basic research is tradionally w out,

is comparavely weak: in 2009, Korean universies accounted

for just 0.9 percent of R&D funding and conducted 11.1 percent

of R&D. Because basic research is more likely to be conducted

at universies and research instutes than by the private sector,

this has important implicaons for Koreas innovaon trajectory

as the country reaches the technology froner.12

In addion, R&D conducted by Korean SMEs and in the services

sectorboth of which are important generators of innovave

products and servicesis comparavely low. It is worth nong

that R&D expenditures by SMEs have increased signicantly in

recent years, growing ve-fold from 12 percent to 24 percent of

Korean rms total R&D expenditures in 2006, but sll pale in

comparison with those of large companies.13

Also noteworthy is Koreas relavely low levels of internaonal

collaboraon on R&D.14 For example, in 2010, 26 percent of

Korean science arcles and 4 percent of Patent CooperaonTreaty (PCT) patent applicaons were produced with internaonal

co-authorship.15 Although a leader in ICT patents, Korea rates

lower among OECD economies in patents for biotechnology,

nanotechnology, and environmental technologies, sectors

Korean policymakers and industries have targeted as future

growth engines.16

These indicators reect some of the broader challenges facing

Korea as it seeks to foster new innovaon-driven economic

growth. The emphasis on applied research, comparavely low

levels of R&D conducted by Korean universies, SMEs, and theservices sector, and low levels of internaonal collaboraon,

reects the nature of much of Koreas R&D being conducted

in-house by large company conglomerates (chaebol).17 During

Koreas period of rapid industrializaon in the 1960s and 1970s,

when the Korean government focused on rapid export-led

growth through developing heavy industry through the chaebol,

SMEs and the services sector were neglected. While chaebol

dominate the Korean economy today, SMEs account for

percent of Korean businesses and nearly 90 percent of priva

sector employment, and services comprise more than 60 perce

of Koreas GDP.

SME growth and development has been limited in part by t

relavely closed nature of Koreas vercally-integrated corpora

structure, in which chaebol rely on in-house knowledge a

resources, and conduct trade and business within conglomera

families, with fewer propensies for new competor entry, spo businesses, and open innovaon.18 In these arrangemen

compounded by lack of compeon and enforcement

compeon rules,19SMEs have served mostly as suppliers a

subcontractors for large companies, rather than as resourc

and partners for innovaon, and their ability to develop th

own innovave capabilies have been limited. The resul

distorons of this economic structure were recognized by Kore

government ocials and analysts by the 1980s,20but success

eorts to create a support infrastructure for SMEs to bolst

R&D acvies failed to bridge these gaps.21Over me dispari

have increased. SMEs are esmated to have only 35 perceof the producvity of large Korean companies27 percent

the producvity in the case of manufacturing rmsand on

0.07 percent of small companies grow into large companies

SME wages are about 62 percent of those of large compani

and service sector wages are 55 percent of those in Kore

manufacturing sector.23 Addionally, government supp

programs for SMEs can create disincenves for SMEs to grow

In these arrangements,

compounded by lack ofcompetition and enforcementof competition rules, SMEshave served mostly assuppliers and subcontractorsfor large companies, ratherthan as resources and partnersfor innovation, and theirability to develop their owninnovative capabilities have

been limited.


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and government bailouts of SMEs in the wake of the 1997-1998

and 2008 nancial crises may have exacerbated these challenges

by increasing SME reliance on public funds.25

Indicators also point to relave weaknesses of Koreas universies

in R&D, which reect some challenges within Koreas educaon

system. Korean experts have long urged improvements in the

quality of educaon, urging less focus on rote learning and more

on creavity and research, and have pointed to the emphasis in

universies on teaching rather than research as a boleneck

for technology learning.26They have also cauoned the explosive

growth of the private educaon industry, driven in part by the

extreme compeveness among students to pass admissions

tests for Koreas most elite universies that are seen as guarantees

for high-presge employment with large corporaons and the

government. One consequence is that Koreans pay more for

educaon than their counterparts in just about every other

OECD naon.27 At the same me, unemployment levels for

university graduates have escalated while jobs with chaebolhave

become increasingly compeve, and SMEswhich lack the

presge, salaries, and benets enjoyed by employees of large

companiesface challenges lling jobs. Forty-three percent

of SMEs responded in a 2011 Korean government survey that

they face or expected to face a labor shortage, in part due to a

lack of qualied applicants, low salaries and benets, and high

expectaons of job applicants.28

For a country whose entrepreneurs of the 1950s and 1960s

built the chaebol of today, Korea is perceived as a challenging

country for entrepreneurship. People in Korea speak of

considerable family and societal pressure on young people to

pursue stable careers in government or large companies, versus

small businesses or starng their own companies.29 In 2012

the Global Entrepreneurship Monitor (GEM), which conducts

the worlds largest survey on entrepreneurship, found that 59

percent of Korean respondents viewed entrepreneurship as a

good career choice, and 70 percent agreed that entrepreneurs

in Korea received a high social status. However, the survey foundcomparavely negave views among Korean respondents of

perceived opportunies, including starng a business where

they live (13 percent), having the necessary skills and knowledge

to start a business (27 percent), and a relavely high fear of

failure (43 percent).30A recent survey conducted by the Hyundai

Research Instute found starkly more negave views: more than

80 percent of respondents saw condions for starng a new

business in Korea as negave, and respondents in the 20-

year age range were even less interested in pursuing a high-te

startup than older people were. The survey also found that

percent of respondents worried about a failed startup enterprresulng in debt delinquency or a poor credit rang, and thre

quarters said that Korea is a dicult place to recover fro

bankruptcyreecng an important barrier to entrepreneursh

and risk taking.31 The relavely negave outlook towards ri

taking and entrepreneurship reects a range of cultural a

structural factors that shape and constrain Koreas environme

for innovaon.

These aspects of Koreas naonal innovaon system a

economic structure have become more pressing challeng

as Korea has reached the limits of its previous econom

development approach predicated on catching up with oth

advanced economies. Koreas potenal growth rate per capi

which slowed from about 7 percent in 1995 to a present level ne

4 percent, is projected to further decrease to almost 2 perce

during the 2030s. This decline reects a decrease in producv

and labor inputs. Important contribung factors include Kore

inexible labor market, which reduces employment mobility a

has created an increasingly dualisc system of regular employe

and non-regular workers lacking the same levels of salari

benets, protecons, and training opportunies. Korea has o

of the worlds lowest ferlity rates, coupled with low levels

women in the workforce. Wage growth has failed to keep with GDP growth, contribung to rising economic inequali

and addressing these challenges is an important priority f

Korea to regain growth momentum.32

The Creave Economy Policy Agenda

The above challenges have long been recognized by Kore

policymakers, and Park is not the rst Korean president to t

about the importance of innovaon or introduce iniav

to enhance Koreas science, technology, and innova

capabilies to support new growth. What disnguishes the Pa

administraon from its predecessors is its heavy emphasis

innovaon, in the form of the creave economy concept,

the centerpiece of its economic policy agenda.

During Parks rst months in oce, the Korean governme

has moved swily to develop and implement this agend

including through three broad policy acons. These includ




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rst, the establishment of a new Ministry of Science, ICT and

Future Planning (MSIP), which was created by combining three

previously separate government agencies and tasked with

leading the development, coordinaon, and implementaon ofcreave economy policies within the Korean government. MSIPs

policy objecves include creang an ecosystem conducive

to facilitang startups, including through strengthening

IP protecons; strengthening Koreas R&D and innovaon

capabilies; making soware and content core industries of

the Korean economy; promong internaonal cooperaon

and globalizaon of Korean businesses and technologies; and

developing science, technology, and ICT to support social needs

and improve peoples livelihoods.33

MSIPs objecves reect the creave economy acon plan

introduced by the Korean government on 4 June 2013, the secondmajor acon by the Park administraon to advance the creave

economy agenda. This plan targets creang new employment

and industries based on creavity and innovaon; strengthening

Koreas global innovaon leadership; and establishing a society

where creavity is respected and manifested. The plan

incorporates six strategies to achieve these goals: establishing an

ecosystem that promotes the creaon of startups; strengthening

the role of startups and SMEs within Koreas economy and

enhancing their ability to enter global markets; generang new

industries as growth engines; fostering world-class creave

talent; strengthening Koreas science, technology, and ICT toincrease innovaon capabilies; and promong a creave

economic culture within Korean society. 34

The creave economy acon plan incorporates a set of Measures

to Develop a Venture-Startup Funding Ecosystem announced

by the Korean government on 15 May 2013 that focus on

eliminang nancial and regulatory barriers to entrepreneurs

and SMEs. These target the goal of creang a free-owing

virtuous cycle of enterprise creaon, growth, investment

withdrawal, and reinvestment along the lines of Silicon Valleys

venture ecosystem, including by improving the environment for

nancing and increasing the availability of investment capital

available to entrepreneurs. Specic proposals to achieve this

include tax incenves and deregulaon to smulate angel

investment and reinvestment by successful entrepreneurs in

new startups; establishing new funds to support startups and

mergers and acquisions (M&As); introducing a crowdfunding

scheme; and regulatory reforms to remove barriers to M&As

related to technology. The proposals also include incenves for

Koreans working overseas to invest in and provide mentorship

domesc entrepreneurs, and creang an entrepreneur visa

encourage highly-skilled foreigners to start businesses in Korea

Other tasks outlined in the creave economy blueprint tack

several issues long idened as challenges to Koreas innova

environment and broader economy. For example, to boo

Koreas innovaon capabilies, the plan calls for increasi

funding for basic research by 40 percent by 2017, along w

improving the relavely weak linkages between universi

research labs, industry, and government, and support f

researchers to commercialize innovave technologies. It pledg

improvements in the infrastructure for generang, protecn

and using IP. To bolster the content and services industries,

targets improving industry producvity through ICT and sowa

convergence and strengthening the soware sector, includi

through measures to develop cloud compung, promote b

data analysis and ulizaon, and expand educaon and traini

of Internet security professionals. The plan calls for increasi

government procurement opportunies for new convergen

technologies, reecng the important role governme

procurement can play in bringing innovaons to market, a

localizaon support to startups with promising products

enter global markets. In educaon, it calls among other thin

for extracurricular acvies to expose students to success

entrepreneurs and startup compeons in order to build th

interest in entrepreneurship opportunies.

In tandem with these plans, the Korean government announc

on 12 June 2013 a set of measures intended to enhance t

producvity of SMEs more broadly.36These include iniaves

strengthen SME technology development capabilies, enhan

their ability to train and retain skilled workers, and expa

markets including through successful commercializaon of ne

technologies. They aim to increase synergies between SM

and large companies, and to improve the support infrastructu

available for SMEs including through more eecve collabora

among government agencies to monitor policy ecacy a

eliminate burdensome regulaons. As part of these measur

the Korean government pledged to increase public funding f

technology development by SMEs to 18 percent of the naon

R&D budget by 2017, and to priorize SMEs in transferring public

funded technologies from universies and instutes. To addre

chronic SME labor shortages, the plan includes scholarships f

university students that commit to SME employment.


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A third set of acons by President Park and her government

has been acve public outreach eorts to promote the creave

economy agenda, and to champion the value of innovaon and

entrepreneurship. Park and senior government ocials havemade frequent site visits to promising Korean startups, and have

held highly-publicized meengs with internaonally renowned

entrepreneurs such as Bill Gates, Larry Page of Google, and Mark

Zuckerberg of Facebook to seek their ideas for acons Korea

should take to foster the creave economy.

The Creave Economy Agenda in Historical Perspecve

Several aspects of the creave economy policy proposals have

precedents in Korea. For example, in 1997 the Korean government

enacted the Special Law on Science and Technology Innovaon,

with the goal of improving Koreas science and technology

capabilies to the level of advanced economies. A related ve-

year plan that entered into eect in 1998 called for increasing

the R&D budget to 5 percent of the total government budget

by 2002, improving science and technology policy coordinaon,

and increasing investment in basic research. It also included

provisions to increase technology promoon funding, expand

technology assistance programs for SMEs, introduce nancing

opons allowing the use of technology and IP as collateral,

and strengthen tax incenves for R&D and human resource

development. At the me these laws were enacted, observerscommented that they did not go far enough to address challenges

with Koreas naonal innovaon system, including removing

instuonal barriers and silo tendencies between instuons,

which limit the diusion of innovaon and interacve learning;

limited labor mobility; limited incenves to increase university-

industry collaboraon; and stricter protecons for IPcricisms

that sll echo today.37

Economic and other reforms implemented by the Kim Dae-jung

administraon following the 1997-1998 nancial crisis included

emphasis on boosng Koreas science and technology capabiliesand R&D acvies, and provided signicant nancial support for

startup businesses. At a me when chaebolwere restructuring

and downsizing, Korea experienced a boom of high-tech startups,

which grew from 100 to 5,000 companies just within 1999, but

which collapsed in tandem with the U.S. dot-com crash.38The Park

administraon has pointed to a heavy reliance on loans as the

primary form of government nancial support for these startups

as a contribung factor to their failure, which underlies its pol

focus on improving the overall environment for investment

startup rms so that they do not need to be as reliant on loan

The Kim Dae-jung administraon also established the MinistryScience and Technology as a separate enty, though it lacked t

power to eecvely coordinate science and technology polic

across other government ministries.39 The Roh Moo-hyun a

Lee Myung-bak administraons also emphasized the need

upgrade Koreas science, research and educaon capabilies a

made similar eorts to increase R&D funding and enhance pol

coordinaon within the government on science, technolog

and innovaon.40

Assessing the Creave Economy Agenda

Park has described the creave economy agenda as a paradig

shi for Korea. The ulmate success of these policies requir

such a shi, for it will involve changing the ways in which t

Korean government and broader public measure and perce

success, and the steps for geng there. The desired outcomes

the creave economy agenda are long term in nature, for wh

a commitment and me horizon beyond Parks ve-year te

as president are essenal. To succeed, they will also necessita

tackling reforms that will be polically sensive. Pragma

and exibility are required, for many successful examp

of the creave economy that Park and her administrahave highlighted were not preordained. Ensuring an enabli

environment for innovaon that does not hold back unancipat

surprises, even if they do not align with government or oth

expectaons, is important.

Although implementaon of the creave economy agenda is s

at an inial stage and it is too early to assess its performanc

below are three areas where leadership by the Park administra

will be valuable in building momentum for this iniave and

enhancing Koreas environment for innovaon.

Regulatory Reform and Geng the Fundamentals Right: Itimportant that the Korean government not lose focus on crea

the most conducive environment possible for innovao

Regulatory, tax, labor mobility, and other reforms that w

encourage businesses both small and large to enhance th

innovave acvies and capabilies, improve their producv

and create new jobs will be benecial.41 As it proceeds w

implemenng its policy iniaves, it is important for the Pa


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administraon to recognize the limitaons of the governments

role and ability to shape the creave economy, and avoid market

intervenons that could inhibit Koreas economy to meet the

challenge of rapidly changing technologies.42John Howkins, whois credited with coining the term creave economy, has pointed

out that governments cannot enforce creavity.43

Park and her administraon have stated that deregulaon is the

key to fostering the entrepreneurship that will drive the creave

economy, and they have pledged to eliminate unnecessary

regulaons. At the same me, more than 500 regulatory measures

have reportedly been introduced by the Park administraon since

taking oce, aer increasing signicantly during the previous

four years.44It is important for the Park administraon not only

to idenfy and eliminate regulaons that constrain the broader

innovaon framework, but also be mindful of their potenal to

do so. One example of such kind of unexpected consequences

are long-standing Korean cyber security laws mandang use of

the AcveX security soware, which over me and in pracce

has constrained Korean consumers ability to make online

payments by de facto liming them only to use of Microsos

Internet Explorer web browser.45 Addionally, proposed cloud

compung legislaon under discussion in Korea has generated

concern within the global IT industry as aempts to regulate the

cloud that could create new market barriers for both Korean and

global cloud services providers.46

Parks creaon of MSIP is a well-intended eort to increase policy

coordinaon within the Korean government and overcome

bureaucrac silos. However, it represents the third major

reorganizaon of the Korean governments science, technology

and innovaon governance system within the past decade. These

frequent changes, coupled with public expectaons for quick

outcomes, present the risk of adverse eects resulng from lack

of connuity and merging together dierent instuons and

their respecve organizaonal cultures.47

The Park administraons focus on supporng SMEs and

entrepreneurs and boosng the services sector, both in

facilitang new opportunies and by strengthening IP and other

protecons, addresses important components of Koreas naonal

innovaon system that have not achieved their full growth

potenal. Implemenng these provisions should be coupled

with broader acons beyond the creave economy agenda

to foster a more level playing eld for SMEs in the domesc

market. These include tackling unfair business pracces, but also

eliminang disincenves for SMEs to grow and by ensuring th

do not become dependent on public funding. Chaebol have

vital role to play in advancing the creave economy agenda, a

deregulaon and incenves that enable them to expand theR&D acvies are important. The Park administraon has push

chaebol to explore win-win opportunies to partner wi

SMEs in bringing innovave technologies to market, including

part of its economic democrazaon goals to reduce the ga

between large and small companies. Some large compani

have announced plans to partner with and open new busine

opportunies for SMEs,48and moving forward it will be usef

to monitor successful incenves and cases that could prese

models for best and eecve pracces.

Fear of failure represents a signicant constraint

entrepreneurship in Korea, and the creave economy agend

The Park administraon has taken an early focus and empha

in its plans to tackle this, parcularly in regards to nanci

for SMEs and entrepreneurs. However, it is also important

consider other regulatory, legal, and instuonal factors th

increase the cost of failure and contribute to the risk aversio

beyond cultural atudes. For example, Koreas strict bankrupt

laws have been idened as a challenge,49and changing the

laws in ways that would encourage more entrepreneurs to t

launching a new business could be benecial. Studies on t

eects of reforms to Japans bankruptcy laws in the 1990s fou

an upck in entrepreneurial behavior in the following years.50

Trade, Foreign Direct Investment, and Global Markets: T

Park administraon has discussed within the creave econom

agenda supporng promising Korean startups entering glob

networks, aracng funding and mentorship from overse

Koreans, and oering an entrepreneurship visa to aract forei

entrepreneurs to set up business in Korea. However, somewh

missing from the Park administraons creave econom

discourse has been trade and foreign direct investment (FDI), a

the important role these can play in facilitang innovaon, bo

through introducing new knowledge and technology spilloveand generang increased market compeon.

Koreas free trade agreements with the United States a

European Union represent important opportunies to advan

the creave economy agenda in this regard.51Full implementa

of these agreements and the regulatory reforms they incorpora

will benet Korean businesses by reducing burdens, fostering

more compeve market, and bringing Korea in closer alignme


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Korea Economic

Institute of America

1

with global standards. The agreements provide Korean SMEs and

entrepreneurial startups new opportunies to introduce their

innovave products and services in these important internaonal

markets. They also open the door to new FDI that could help foster

the new creave industries sought by the Park administraon.

Several elements of these agreements, including eliminang

barriers to market entry and FDI, increased transparency, and

enhanced compeon policies, among others, have been

idened as keys for strengthening Koreas underperforming

services sector.52The Korean government should be looking how

most eecvely to leverage these agreements, along with other

trade agreements Korea is currently negoang or may join in the

future, to create synergies with its creave economy iniaves

and help innovave Korean businesses enter global markets.

Communicang the Importance of Innovaon: The Park

administraon has an important role to play in building

public consensus around the creave economy agenda,

including through communicang the value of innovaon

and entrepreneurship. It will need to clearly arculate how

related policy acons and reforms, including some that may be

polically sensive, will advance the creave economy agenda,

as well as manage public expectaons about outcomes that

could take years to manifest. While it is prudent not to dene

creave economy in the public consciousness as narrowly as

the Park administraon has somemes risked doing with its

emphasis on ICT convergence, overuse of the term for unrelated

and counterintuive projects could risk generang public

percepons of the term as an empty slogan.

Because many barriers to innovaon in Korea are cultural in

nature, the educaon sector should be a primary area of focus

of the creave economy agenda. Eorts to overcome the

constraints, create more tolerance for failure, and broad

percepons and public denions of what success mea

would benet through infusing these principles in to t

educaon system early. Groups like the Korea Entrepreneursh

Foundaon are taking an acve role in Korea to encoura

this. To support change, sustained and consistent messagi

from the president and other senior government and busine

leaders will be paramount.

Conclusion

The Park administraons creave economy agenda represen

an important and needed eort by the Korean governme

to build the foundaon for Koreas future sustained grow

and prosperity. It addionally presents new approaches a

opportunies to tackle pressing social and demograph

challenges increasingly confronng Korea. Moving forward, it

important that the Park administraon not lose focus of its go

of ensuring the best potenal ecosystem in Korea for innovao

entrepreneurship, and fostering creave new industri

Addressing regulatory, structural, and cultural barriers requir

long-term approach and commitment, and may not yield sho

term results. This will require paence in implemenng t

agenda, and in demonstrang and communicang to the broad

Korean public posive outcomes and new ways of measuri

success more appropriate to Koreas future growth trajecto

While this would be challenging for any government, Korea h

demonstrated me and me again a remarkable capability a

dynamism to adapt to new paradigms, and the creave econom

agenda will hopefully be no excepon.




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12

Endnotes1 The comment nobody knows what (creave economy) means came up oen in the authors conversaons during visits to Seoul, Korea in 2013.

2 Park Geun-hye, Opening a New Era of Hope (The 18th Presidenal Inaugural Address) (speech, Seoul, Korea, February 25, 2013), Oce of the President

(Republic of Korea), accessed 4 December, 2013, hp://english.president.go.kr/pre_acvity/speeches/speeches_view2.php?uno=7783&board_no=E12&search_key=&search_value=&search_cate_code=&cur_page_no=2.

3 Seoul Unveils Plans for Growth, Job Creaon through Creave Economy, Yonhap News, 5 June 2013, accessed 9 September 2013, hp://english.yonhapnews.co.kr/business/2013/06/04/51/0502000000AEN20130604002751320F.HTML.

4 Organizaon for Economic Co-operaon and Development (OECD), Ministerial Report on the OECD Innovaon Strategy. Innovaon to Strengthen Growth andAddress Global and Social Challenges. Key Findings (Paris: OECD Publishing, May 2010), accessed 20 June 2012, hp://www.oecd.org/dataoecd/51/28/4532634pdf, 1.

5 Smits, Ruud, Stefan Kuhlmann, and Morris Teubal, A System-Evoluonary Approach for Innovaon Policy, in Ruud E. Smits, et al, eds., The Theory and Pracce oInnovaon Policy. An Internaonal Research Handbook(Northampton, MA: Edward Elgar, 2011), 417, 429-430.

6 Ernst, Dieter, Europes Innovaon-Union Beyond Technonaonalism, East-West Center Working Papers, Economics Series, 132, August 2012, accessed 23November 2013, hp://www.eastwestcenter.org/sites/default/les/private/econwp132.pdf, 2.

7 Robert D. Atkinson, Stephen J. Ezell, and Luke A. Stewart, The Global Innovaon Policy Index, March 2012 (Washington, DC: Informaon Technology and InnovaFoundaon and Kauman Foundaon, 2012), 9-18.

8 Kauman Foundaon, Kauman Foundaon-Funded U.S. Census Bureau Data Highlight Importance of Business Startups to Job Creaon in the U.S., 14 January2009, accessed 3 August 2012, hp://www.kauman.org/newsroom/business-dynamic-stascs.aspx.

9 American Chamber of Commerce in Japan (ACCJ), Charng a New Course for Growth: Recommendaons for Japans Leaders, (Tokyo: ACCJ, 2010), 10-22.

10 OECD, Korea, in Science, Technology and Industry Outlook 2012(Paris: OECD Publishing, 2012), accessed 8 October 2013, hp://www.keepeek.com/Digital-AssManagement/oecd/science-and-technology/oecd-science-technology-and-industry-outlook-2012/korea_s_outlook-2012-59-en#page1, 336-339.

11 Jones, R.S., and S. Urasawa, Sustaining Koreas Convergence to the Highest Income Countries. OECD Economic Department Working Papers, 965 (Paris, OECDPublishing), 2012, hp://dx.doi.org/10.178715k97gkd8jgzs-en, accessed 20 March 2013, 36.

12 Jones, 36.

13 Michael Keenan, Moving to the Innovaon Froner: Lessons from the OECD Review of Korean Innovaon Policy, in Korean Science and Technology in anInternaonal Perspecve, J. Mahlich and W. Pascha, eds. (Berlin: Spring-Verlag, 2012), 22.

14 Ki-Seok Kwon, Han Woo Park, Minho So, Loet Leydesdor, Has globalizaon strengthened South Koreas naonal research system? Naonal and internaonal

dynamics of the Triple Helix of scienc co-authorship relaonships in South Korea, Scientometrics(2012), 90, 163-176.15 OECD, Korea, 338.

16 OECD, Korea, 336-339.

17 Linsu Kim, Imitaon to Innovaon: The Dynamics of Koreas Technological Learning , (Cambridge, MA: Harvard Business Press, 1997), 64.

18 Marcus Noland, Koreas Growth Performance: Past and Future, East-West Center Working Papers, Economics Series, 123, November 2011, 21.

19 Wonsik Choi, et al, Beyond Korean Style: Shaping a new growth formula, McKinsey Global Instute, April 2013, accessed 6 December 2013, hp://www.mckinsecom/insights/asia-pacic/beyond_korean_style, 34.

20 Kim, Imitaon to Innovaon, 171, 189, 197.

21 Linsu Kim, Crisis, Reform, and Naonal Innovaon in Korea, in Crisis and Innovaon in Asian Technology, William W. Keller and Richard J. Samuels, eds.(Cambridge: Cambridge University Press, 2003), 104.

22 McKinsey, Beyond Korean Style, 35-36.

23 McKinsey, Beyond Korean Style, 22.

24 McKinsey, Beyond Korean Style, 36; Noland, 21.

25 Jones, 40.

26 Kim, Imitaon to Innovaon, 64; also, Kim, Crisis, 102.

27 David McNeill, Aer Decades of Building Colleges, South Korea Faces a Lack of Students, Chronicle of Higher Educaon58, no. 15 (2 December 2011), A14.

28 Jones, 21.

29 What do you do when you reach the top? Economist, 12 November 2011, accessed 23 April 2013, hp://www.economist.com/node/21538104/print. This topalso came up in several conversaons during authors visits to Seoul, Korea in April and May 2013.


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1Building a Creative Economy in South Korea: Analyzing the Plans and


30 Siri Roland Xavier, et al, Global Entrepreneurship Monitor 2012 GEM Report(Babson Park, MA: Global Entrepreneurship Monitor, 2013), accessed 8 October 2013hp://www.gemconsorum.org/docs/2645/gem-2012-global-report, 20.

31 Kwaak, Jeyup S. Fear of Financial Ruin Holds Back Korean Startups. Wall Street Journal, 25 October 2013, accessed 31 October 2013, hp://blogs.wsj.com/korearealme/2013/10/25/fear-of-nancial-ruin-holds-back-korean-startups/.

32 OECD, Strengthening Social Cohesion in Korea: Assessment and Recommendaons (Preliminary Version), (Paris: OECD Publishing, February 2013), accessed 20March 2013, hp://www.oecd.org/els/Korea_AR_2401 For OPS.pdf, 1-8. Also McKinsey, Beyond Korean Style, 22-23.

33hp://english.msip.go.kr/english/wpge/m_57/eng02.do.

34 The Park Geun-Hye Administraons Creave Economy Blueprint, Creave Economy Acon Plan and Measures to Establish a Creave EconomicEcosystem, Ministry of Strategy and Finance (MOSF), Republic of Korea, press release, accessed 30 September 2013, hp://english.mosf.go.kr/pre/view.do?bcd=N0001&seq=3289&bPage=6.

35 Measures to Develop a Venture-Startup Funding Ecosystem, MOSF press release, 15 May 2013, accessed 30 September 2013, hp://english.mosf.go.kr/pre/viedo?bcd=N0001&seq=3267&bPage=1.

36 Measures for Producvity Enhancement of SMEs to Build a Creave Economy, MOSF press release, 12 June 2013, accessed 30 September 2013, hp://englismosf.go.kr/pre/view.do?bcd=N0001&seq=3300&bPage=6.

37 Lee Won-Young, The Role of Science and Technology Policy in Koreas Industrial Development, in Technology, Learning and Innovaon: Experiences of NewlyIndustrializing Economies, Linsu Kim and Richard R. Nelson, eds. (Cambridge: Cambridge University Press, 2000), 284-287.

38 Kim, Crisis, 94, 101.

39 Kim, Crisis, 91.

40 Margot Schller, Marcus Conl and David Shim, Korean Innovaon Governance Under Lee Myung-Bak A Crical Analysis of Governmental Actors New Divisioof Labor, in Korean Science and Technology in an Internaonal Perspecve, J. Mahlich and W. Pascha, eds. (Berlin: Spring-Verlag, 2012), 118-121.

41 DoHoon Kim and Youngsun Koh, Koreas Industrial Development, in The Korean Economy. Six Decades of Growth and Development, SaKong Il and Youngsun Koeds. (Seoul, Korea Development Instute), 86, 93, 96.

42 Kim, 195-196

43 Lee Joo-hee, Creave economy guru urges cauon, Korea Herald, 15 May 2013, accessed 15 May 2013, hp://www.koreaherald.com/view.php?ud=20130515000832

44 Entrepeneurial Spirit, (Editorial), Korea Herald, 30 October 2013, accessed 23 November 2013, hp://m.koreaherald.com/view.php?ud=20131030000647&ntn

45 Harlan, Chico, South Korea is Stuck with Internet Explorer for Online Shopping Because of Security Law, Washington Post, 4 November 2013, accessed

23 November 2013, hp://www.washingtonpost.com/world/asia_pacic/due-to-security-law-south-korea-is-stuck-with-internet-explorer-for-online-shopping/2013/11/03/d2528a-3e-11e3-b028-de922d7a3f47_story.html.

46 Informaon Technology Industry Council, ITI Comments on Koreas Proposed Bill for the Development of Cloud Compung and Protecon of Users, 3 July 20accessed 4 December 2013, hp://www.ic.org/dotAsset/928ebb6f-d345-4085-a5d5-390b7c7bb3a9.pdf.

47 Schller, Conl and Shim, Korean Innovaon Governance, 126.

48 For example, see Ji-hyun Kim, LG opens W400b market to SMEs,Korea Herald, 20 May 2013, accessed 6 December 2013, hp://www.koreaherald.com/view.php?ud=20130520000828.

49 Noland, 21.

50 Robert N. Eberhart, Charles E. Eesley, and Kathleen M. Eisenhardt, Failure is an Opon: Failure Barriers and New Firm Performance, Dra Working Paper andPreliminary Results (Palo Alto, CA: Stanford University, 2012), accessed 25 June 2012, hp://iis-db.stanford.edu/pubs/23422/Failure_is_an_Opon_11.4.pdf, 2, 2

51 This topic will be explored in more detail in in a forthcoming paper by the author, Creang Koreas Future Economy: Innovaon, Growth and Korea-U.S. EconomRelaons, East-West Center, forthcoming.

52 Jones, 38-39.


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