Private Sector Leadership in the Pacific Region:
Challenges for the New Century
Han Duck Soo
Minister for Trade, Republic of Korea
1999 PBEC Mid-term Meeting
Auckland, New Zealand
Wednesday, September 8, 1999
I would like to thank Chairman Sohmen for inviting me to share my thoughts with this distinguished audience. Looking around this room, I find many familiar faces, and I realize how prestigious this opportunity is, indeed. Furthermore, Minister Lockwood's presence here and his valuable insights he just shared with us add to my honor of being here this evening.
Tomorrow, you will have a full day of PBEC Working Committee meetings, and the following day many of you will join the APEC CEO Summit to discuss the Asia-Pacific region's economic cooperation.
I am happy to see these series of events, because I firmly believe that the economic cooperation of any region, and this region, in particular, should be - and is - driven by the private sector leadership. And I know, that is the idea this PBEC epitomizes.
We have heard so many times about the roles of the market and the government for the new age. But this evening, I would like to go over why the private sector leadership is critically needed in today's economic affairs and what roles are expected of the business sector - especially PBEC - and the governments for the Asia-Pacific economic cooperation.
IMPORTANCE OF PRIVATE SECTOR LEADERSHIP
Why do we need more private sector leadership in economic affairs today? This is similar to asking, "why do we need to rely upon the market more than ever?" Among many different possible answers, a simple and the most important one I believe is "information."
We know that, in the past, several economies in East Asia have developed themselves based on government leadership. This was possible, because - at the early stages of economic development - some governments knew best about their own economies. Standing at the start line, with the private sectors still underdeveloped, those governments could determine which direction they should take to build their economies. In East Asia's cases, several governments have targeted industrial sectors and mobilized and channeled the production factors - such as capital and labor - to those targeted industries. The efforts resulted in dramatic successes in a few cases. This was possible, because at the early stages of economic development, the amount of information was limited, and the governments could monopolize it.
However, as the economies developed, the sizes of the private sectors grew and the markets expanded. The governments no longer had a monopoly on information. The private sectors understood better what the markets demanded and needed. Only through market mechanisms where private actors participated and made best possible decisions, could the best quality goods and services be produced at lowest costs. The governments' job was to accommodate market mechanism and help the economies function as freely as possible.
This transition to market-driven development was necessary for all growing economies, including the East Asian "developmental states." However, this transition was delayed, particularly in Korea. There lied the most important reason for the recent crisis Korea has suffered.
And, from that, Korea has learned a clear lesson. We are now determined to let the private sector and market principles lead our way to future prosperity.
In finance, for instance, in order to remove government interference in the long run, we are now strongly enforcing international standards in all areas of operation including credit management and accounting. We believe that our efforts will maximize transparency and market-driven efficiency in this fast growing sector.
In the corporate sector, we are transforming corporate governance to ensure market efficiency. We want to dispose of the old model where founders or their family members monopolized managerial decisions in all areas of businesses within conglomerates. We have since strengthened disclosure requirements and the minority shareholders' rights. We require consolidated accounting for business groups. The largest companies will have to appoint half of their board members from the outside. We have prohibited cross-debt guarantees and are trying to minimize cross-holdings among conglomerate subsidiaries. These steps, we believe, will increase shareholders' interests in the market, ensure market efficiency in the corporate sector, and vitalize the private sector leadership in the long run.
Our government can not be an exception to our comprehensive reform efforts. In fact, our government became smaller in size, and we trimmed down government regulations drastically, in order to maximize market efficiency and private sector vitality. Last year, the central government personnel was reduced by 5%. It will be further reduced by 11% by the end of this year. At the beginning of last year, we had 11,125 regulations in Korea. Within six months after the deregulation drive was launched, the Regulatory Reform Committee eliminated nearly half of them - 5,428 regulations, to be exact.
My point is this. Private sector initiatives matter more than ever, as the economies of the Asia-Pacific region have developed. Korea has realized this new need more acutely because of the recent crisis. And, based on that realization, we have been implementing fundamental reforms.
PBEC AND THE NEW GLOBAL AGE
Now, let me turn to PBEC. Of course, PBEC is not the only pan-Pacific business organization. The day after tomorrow, we will have the APEC CEO summit. Also, under APEC's auspices, we will have the ABAC (APEC Business Advisory Council). But, among these organizations, PBEC is the oldest and that - in itself - holds many special meanings.
In fact, in its more than three decades of history since 1967, PBEC has been engaged in issues that have been critical to the well-being of the Pacific economies. By identifying and working on five key areas of concern - business environment, foreign direct investment, trade barriers, technology development, and environment - PBEC has made important marks.
And, I believe that the importance of PBEC - as the leading pan-Pacific business organization - will only increase in future. Among many reasons, I want to particularly emphasize the increasing importance of the private sector initiatives that I have just talked about. But, that is not all.
We often characterize today's world as being in the "global information age." I believe this expression perfectly fits in with PBEC's task. If you are looking for dynamics of globalization, you do not have to look any further beyond the Pacific region. If you want to see the evidence of information-driven economic development, it is right here in the Pacific where you can find most vivid examples.
And, I am sure, PBEC realizes that it stands right at the center of the fast stream of those changes. For that reason, my expectations for PBEC are high. I hope that PBEC will play the leading role in accelerating the knowledge-and-information-based economic development in the region.
The Pacific region is well known for its diversity. Here, diversity means not only having varieties in the way we conduct our lives but also the differences in the levels of development, income and standards of living. When the gaps in these latter categories are too big and left unaddressed, it will be difficult to continue to think of regional cooperation and harmony in the long run.
Living in the age of information-and-knowledge-based industries, I believe that we have a unique advantage in the Pacific region. In the past, economic development depended upon manufacturing. That required a considerable amount of capital. For poor countries, such requirements imposed insurmountable barriers. But now, it is much easier to narrow the gaps. The key is to focus on developing human capital. Without requiring grandiose physical investment, a knowledge industry can be built. Not only that, the scope of new information is so wide; different players can easily specialize, achieve comparative advantage and become mutually complementary.
PBEC can make important contribution to this process. PBEC has six Working Committees. One of them is for electronic commerce. PBEC may want to consider establishing additional working committees for information-and-knowledge-based industries.
Having said that, I am not suggesting that the entire focus of PBEC should be devoted only to future-oriented new industries. Mature industries, such as automobiles and electronics, do not seem to be directly dealt with by any of the six Working Committees.
PBEC may want to consider setting up mechanisms - such as additional committees - to address the concerns of those matures industries as well. Globalization means increased need for cross-border cooperation and harmonization, and opportunities for strategic alliances between firms for finance, R&D and marketing. Not only new industries but also mature industries in the Pacific region await an even more active leading role of PBEC.
THE PUBLIC SECTOR'S ROLE
I have touched upon the increased importance of private sector leadership and PBEC's role so far. But you may ask: "What about the government?" "Do they want to just take the back seat?"
My answer is "yes." Ultimately, the governments should take the back seat. But, that means the governments should help further along the way in order to activate private sector leadership. And, first, for now, governments are now working hard to bring down barriers to achieving a truly globalized market.
That is why senior government officials from the region are here in New Zealand for APEC and the heads of the regional economies are coming for the Summit. APEC celebrates its 10th anniversary this year. The leaders will review and evaluate APEC's performance in the last 10 years and re-affirm the importance of continued liberalization. They will hammer out a consensus as to where APEC should be headed in the next century.
Looking back, there is no doubt that the annual meetings of leaders provided vital momentum to the continued trade and investment liberalization and facilitation, and economic and technical cooperation. Back in 1994, leaders had successfully forged consensus in Boger to complete market liberalization by 2010 for industrialized economies and by 2020 for developing economies. This Bogor Declaration was a monumental achievement indeed, considering the diversity of the economies that joined the declaration.
Embracing the new century, leaders will discuss this year ways to ensure the implementation of the Bogor commitments. Related to this market opening initiative, another central agenda for discussion will be about the new round of WTO trade negotiations to be launched in Seattle this coming December. Through the past two years of economic difficulties, APEC leaders have realized the importance of continued commitment to trade and investment liberalization.
For that reason, in Auckland, the leaders will put across the strongest signal of support to the success of a new round and demand its agendas to be broadly based and well balanced to incorporate the interests of both developed and developing economies. The new round of WTO negotiations will be crucial in building a framework for achieving the Bogor commitments. In that context, APEC economies will have a strong interest in the new round and every reason to make the negotiation an unprecedented success.
In fact, all of APEC issues are about helping the private sector and enhancing the market mechanism. However, this year's APEC has prepared specific agendas that address those issues more directly. Under the agenda called "strengthening market mechanism" we will discuss ways to encourage market competition and deregulation. We will also discuss legal frameworks affecting business and corporate governance issues.
In summary, the governments in the Pacific region are working hard - both at home and abroad - to help the markets and private sector lead the globalization process. But, the leadership in future economies should come from the private sector. In this Pacific region, it is reassuring to know that we have PBEC.
PBEC has done a wonderful job for the past three decades. Now, even more is expected of it, as the region faces the beginning of a truly globalized information age. I hope you will have very constructive discussions here in Auckland and help all of us open the way into the new Pacific century.
Thank you very much.
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