When standing outside a Costco, a Homeplus or a Lotte department store on a Sunday afternoon in South Korea, one can watch car after car pass by with a bevy of bemused drivers looking askance at the closed doors. There is always the same look of wonder on their faces that in South Korea, which is ostensibly a capitalist nation, the government interferes so directly in the ordinary workings of business. You would think South Koreans would be used to it by now; after all, the government has been interfering in the workings of the open market for the last 50 years.
Despite this long history of interference, South Koreans still seem overwhelmed by how readily their government favors one sector or another of society with little or no regard for the impact of such policies on the average citizen. Of even more wonder is how the government changes the sectors it favors from year to year and from administration to administration. This constant inconstancy is one of the more frustrating things for foreign investors to endure when dealing in South Korea.
For a company like Costco, it must be wearisome to endure these forced closures. Since the ostensible concept behind the forced closures is a way to repay small and medium-sized businesses for their suffering when the government favored chaebol companies, including foreign retailers is unfair. The real focus of these regulations should be the chaebol companies who were the recipients of vast amounts of government subsidies in the 1970s and 1980s that allowed them to grow and now to dominate the South Korean marketplace. Perhaps it is unfortunate for Costco that the necessity of a local partner when they entered the South Korean marketplace back in the 1990s is now a reason to include them in the broad sweep of the regulations. Nonetheless, although the concept of trying to repay those who suffered from the lopsided economic policies of the 1970s and 1980s seems sound, it is in fact merely a continuation of inefficient government meddling that ultimately damages South Korea’s economic growth.
This damage arises from the impact these closures have on the middle class in South Korea. It is well recognized that one of the prime engines of growth in a capitalistic society is the pocketbook of the middle class. As far back as 1914, Henry Ford, the founder of Ford Motor Company, recognized that if he wanted to sell a lot of cars he had to pay his workers enough that they could afford to buy one. This concept spread quickly through Western capitalist societies and the American middle class, with its relatively high wages still a prime driver in the world economy.
However, despite this century of learning, the South Korean government still seems intent on damaging the South Korean middle-class pocketbook through misguided actions driven by its pandering to whichever segment of South Korean society complains the loudest.
Thus in the past decade, the South Korean middle class suffered under high food prices for an extra four years because of the inane blockage of the free trade agreements with the U.S. and Europe brought by the pressure of inefficient South Korean farmers. The final passage of these agreements has resulted in a marked decrease in the prices and a huge improvement in the quality of meat and vegetables available in South Korean grocery stores. Similarly, when the large retailers began selling $5 fried chicken, the loud protests of fried chicken store owners drowned out the happiness of the average family.
And now, when the large retailers have expanded their volume and reduced food prices, the outcry of small, inefficient convenience store owners has convinced the government to once again damage the pocketbook of the average family. One wonders if the government really expects the average family to purchase overpriced, low-quality products from a convenience store instead of waiting one day to purchase goods of much higher quality at a cheaper price from a large retailer.
The sad thing is that all of this interference neither affects the chaebol nor helps the average convenience store owner. The chaebol continue to rake in ever-increasing profits and amass even greater sums while the average convenience store continues to suffer due to oversaturation of the marketplace.
After all, in what other country can you walk past six convenience stores, eight coffee shops and 18 restaurants on every city block? These closures only force the middle-class consumer in South Korea to either wait a day or pay exorbitant sums for a carton of milk or low-grade meat.
For South Korean mothers, who usually buy food each and every day in order to feed their families the freshest fruits and vegetables, this inconvenience is unnecessary and unfair. And for those of us who travel, it is another reminder of just how far South Korea has to go in order to become an advanced nation. Thus, after a lengthy seminar tour in the U.S., I returned to South Korea on Saturday and failed to immediately restock my food pantry. And so I found myself standing outside Costco on Sunday afternoon watching the bemused drivers and wondering and waiting for food.
By Daniel Fiedler
Daniel Fiedler has been a professor of law in South Korea since 2006 and a licensed attorney in California since 2000 and Arizona since 1998. ― Ed.