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Transcript of 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
Building a Creative Economy in South Korea: Analyzing the Plans and
Possibilities for New Economic Growth
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2
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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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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Building a Creative Economy in South Korea: Analyzing the Plans and
Possibilities for New Economic Growth
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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Building a Creative Economy in South Korea: Analyzing the Plans and
Possibilities for New Economic Growth
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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1
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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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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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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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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