Introduction: 2008, the year of ‘high hopes’
Lee Myung-bak’s landslide election victory was greeted enthusiastically in Washington
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Expectations were high for greater coordination of North Korean policy, transformation of the US-ROK military relationship into a strategic alliance, and rapid implementation of economic reforms and Korean ratification of the KORUS FTA.
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The Lee administration’s emphasis on implementing business-friendly, free market-based economic policies was encapsulated in its slogan of “small government, big markets.”
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Collectively, these changes were seen by all Korean observers in Washington as laying a firm foundation for realizing the full potential of the bilateral relationship.
I was honored to be present for the Inauguration in February. Hopes were indeed, high.
‘High hopes’ dashed early
In South Korean politics, the only constancy is change and the intervening months have brought dashed hopes and lowered expectations.
The chastened president was forced by extensive public protests to twice apologize to the nation, pledge to reform his leadership style, and abandon some policy initiatives for which he was elected.
The ruling Grand National Party even adopted a populist strategy by jumping on the issues in what could be described as the anti-MB bandwagon.
As a result, investors continue to flee South Korea, taking with them the critically needed capital to help the country grow its economy and improve its competitiveness against regional rivals.
*Pyongyang eschews contact with Seoul, even rejecting South Korean offers of humanitarian aid to alleviate dire North Korean food conditions.
*Pundits and politicians speculate whether the politically weakened Lee is already a lame duck only six months into his five year term.
International economic fallout
There is real economic fallout from Korea’s protest mentality.
President Lee spoke of the Korea “national brand” in his August 15th National Liberation and Founding Day speech. He warned that the “very first images that come to foreigners’ minds are labor-management disputes and street rallies. In this context, if the nation wants to be labeled as an advanced country, it will be necessary to improve its image and reputation significantly.”
His description is correct though I believe that it understates the extent of Korea’s difficulties.
In recent years, the Korean national image suffered in the international business community as a result of President Roh Moo-hyun’s vacillating but generally anti-business economic policies as well as the anti-foreign sentiment evident in the crusade against overseas investment firms.
This year’s anti-beef protests only affirmed investor perceptions that Korea is not a business-friendly investment environment.
Moreover, the fierce public nationalism unleashed against Japan and the United States over the Dokdo Island dispute, and the government’s willingness to succumb to it, suggests that Korea remains an immature democracy.
President Lee’s quest for Korea to be recognized as a top-tier status country has been dealt a severe setback.
For an increasing number of foreign firms, investment in South Korea is simply not worth the risks. During 2008, there has been a continuing decline of foreign direct investment in Korea, the foreign sell-off on the KOSPI, and an overall shift to other Asian markets.
Korean firms have also been a part of this economic exodus. The chaebol have either hoarded enormous stockpiles of cash or looked overseas rather than to make further investments in South Korea.
An accompanying shortfall in long-term investment in research and development has lowered Korea’s economic competitiveness.
As a result, Chinese firms have narrowed the technology gap which previously provided Korea the advantage to hold off the rapidly approaching economic dragon to your west.
And, in a personal cautionary note, having just spent some time in India, I would say that India is also on the move, with more business-friendly initiatives for both foreign and domestic firms.
Regaining the Economic Initiative
South Korea’s economic challenges are too severe to allow for a timorous president to bunker down in the Blue House. Although the anti-beef demonstrations unleashed forces opposed to expanded free trade, President Lee Myung-bak must stand firm and regain the initiative to press for economic reform.
Like a prize fighter dazed and bloodied in the first round of a lengthy championship bout, President Lee must pull himself up and continue for the length of his administration.
The ROK still needs real economic reform
In order to reverse this dangerous trend, President Lee Myung-bak must revitalize South Korea’s reform efforts. Restrictive governmental policies and unfavorable labor conditions are sapping economic strength.
* South Korea must upgrade its technological base if it hopes to remain ahead of its competitors, particularly China and Japan.
*Firms must be able operate in a flexible and market-driven environment, but South Korea's business environment remains inhospitable because of labor market inflexibility, rigid institutions, and government regulations.
Ratifying the KORUS FTA is especially critical for South Korea. It will improve the country's competitiveness against regional economic rivals China and Japan; provide momentum for other critically needed economic reforms, and send a powerful signal that South Korea is receptive to critically needed foreign and domestic investment.
Though initially unpopular, these remedial economic reforms will eventually bear fruit and improve South Korea’s economy. Allowing obstructionists to maintain an economically stagnant status quo works against the well-being of the South Korean people.
Transforming the U.S.-South Korean Alliance
I need not remind this distinguished audience that the U.S.–South Korean security alliance has been indispensable in achieving Washington's strategic objectives and maintaining peace and stability in northeast Asia.
The U.S. security guarantee has long deterred a North Korean attack against a key U.S. ally while providing the shield behind which South Korea was able to develop its economic strength and institutionalize democratic rule.
It is important that the alliance begin the evolution from a singularly focused mission to a more robust values-based relationship that looks beyond the Korean Peninsula.
We believe that it is in America's interest to have South Korea as a global partner in responding to regional and global security issues. The military alliance is a critical component of the comprehensive bilateral partnership that encompasses diplomatic, informational, military, and economic aspects based on shared values of democracy, liberty, and free-market principles.
Washington and Seoul should develop a joint strategic vision of the future purpose, objectives, and roles of the broader alliance and how it furthers the two countries' national interests, and I believe that the discussions at this conference can be a very helpful step towards achieving that objective.
Both countries must initiate a robust public-diplomacy effort to secure extended public and legislative support for the Alliance.
Failure to provide a sufficiently clear strategic vision as justification for the enduring need for the alliance could lead to an erosion of public and legislative support and calls for a reduction or withdrawal of USFK.
Without substantial and sustained involvement by the senior political and military leadership, the alliance may not be sufficiently adapted to the new threat environment, including as a hedge against Chinese military modernization.
The U.S. must eliminate its tendency in recent years to define its relationship with Japan as the only critical alliance for Asian stability.
This prioritization may have been understandable given the convergence of Washington's security objectives with those of Prime Ministers Koizumi and Abe and the commensurate difficulties with President Roh.
But policy statements that imply a secondary status for U.S. relations with South Korea are a disservice to the stalwart military bonds forged during 50 years of this critical bilateral alliance.
U.S., Japanese, and South Korean security interests are best served by extensive and coordinated military cooperation among the three allies.
*Seoul and Tokyo should resurrect the pledge of amity fostered during the initial meeting between President Lee and Prime Minister Fukuda. Both leaders must set the tone to overcome nationalist rhetoric arising from historical differences.
Implementing a Principled Engagement Policy
President Lee’s opponents try to blame his more pragmatic policy toward North Korea for the current impasse in inter-Korean relations.
Despite mischaracterizations as an isolationist, President Lee continues to hold out the hand of engagement to North Korea.
He will, however, condition economic, humanitarian, and political benefits on the pace of North Korean denuclearization. This realistic policy is more consistent with the six-party talks' goal of using coordinated multilateral diplomatic efforts to leverage Pyongyang's implementation of its nuclear commitments.
Lee’s policy is a significant departure from former President Roh's approach of unconditional, asymmetric provision of benefits to Pyongyang without demanding any reciprocal economic or diplomatic concessions from the DPRK.
By providing billions of dollars in unconditional aid and promises of yet more largesse, Seoul minimized its influence over Pyongyang and marginalized its effectiveness in the talks.
With a guaranteed pipeline of benefits from South Korea, North Korean leader Kim Jong-il had less need to comply with the "action for action" requirements of the talks.
By the October 2007 inter-Korean summit, Roh's policy had deteriorated to promising a dramatic influx of benefits without any intention of altering North Korea policy and even capitulating to Pyongyang's demand to stop using the word "reform" in an inter-Korean context.
The impact of the US election - parsing the U.S. candidates’ views on Korea
There’s little difference between McCain and Obama on the U.S.-South Korean strategic relationship.
Both have affirmed the importance of South Korea as a military ally, a strong economic partner, and a nation that, like the U.S., values freedom and democracy.
Both candidates support the need for strong alliances with both South Korea and Japan to achieve U.S. security objectives, including maintaining peace and stability in northeast Asia.
The greatest difference between the two candidates is over the KORUS FTA, with McCain firmly in favor and Obama fiercely opposed.
McCain highlights the fact that both countries would benefit economically from lowering trade barriers, including the expected $20 billion increase in annual bilateral trade. He cites the KORUS as an example of the rewards of free trade in an era of growing economic globalization.
And McCain underscores the political and geo-strategic benefits of formally expanding the relationship beyond the military alliance.
Obama opposes the KORUS FTA as “badly flawed,” claiming it wouldn’t do enough to increase U.S. auto sales. His criticisms echo the auto labor unions, which are fighting to defeat a trade bill that redresses the very problems they have complained of for years.
Despite gaining favorable terms for U.S. autos, Detroit has called for guaranteed market share and tying an incremental reduction in U.S. tariffs to the number of cars sold in South Korea.
But either candidate probably will have to contend with a more protectionist Democratic-led Congress that is increasingly hostile to free trade.
With regards to North Korea, McCain and Obama favor engaging rather than isolating North Korea, and both agree that the Six Party Talks offer the best potential for achieving North Korean denuclearization.
Each candidate believes that a strict verification protocol is an absolute prerequisite for removing North Korea from the state sponsors of terrorism list, as well as for making further progress in the nuclear negotiations.
A Bush administration capitulation on this point would face strong criticism from both camps.
McCain, however, has expressed greater skepticism that diplomatic engagement will actually achieve North Korean denuclearization.
He opposes President Bush’s current negotiating methods, which only provide incentives. More so than Obama, McCain would rely on pressure, including applying UN Resolution 1718, to augment diplomacy with North Korea.
McCain has been a vociferous critic of North Korea’s abysmal human rights record. But those that would depict him as an unrepentant hardliner should remember his critical role in normalizing relations with former adversary Vietnam.
Obama emphasize “sustained, direct, and aggressive” engagement with North Korea. His declaration that he would meet unconditionally with despotic world leaders generated considerable controversy.
The Obama campaign has since modified this position, highlighting that such meetings would be conditioned on sufficient preparatory work and simply showed a willingness to use all the diplomatic tools of statecraft to resolve difficult issues.
Either candidate’s North Korean policy would be heavily influenced by the status of the Six Party Talks upon assuming office in January 2009.
If the negotiations appear to be reasonably on track, President McCain or Obama would continue the process, with the unique characteristics of his policy becoming more evident over time.
Conversely, a belligerent Pyongyang that refuses to accept international standards of verification would draw a firmer U.S. response.
More troubling for the next U.S. president, however, is a growing sense that Pyongyang’s obstructionist antics are not merely negotiating ploys but are instead designed to achieve international recognition of, or tacit acquiescence to, North Korea as a nuclear power.
If that is true, then no combination of inducements will compel Pyongyang to give up its nuclear weapons. President Bush’s successor would be faced with even more difficult challenges down the road with Pyongyang likely to test the new president early in his administration.
Conclusion: looking to the future
In my opinion, President Lee Myung-bak faces a political crisis that requires a bold proactive strategy to overcome the country's factionalism and put South Korea back on the path to economic recovery.
Although the situation currently appears bleak for the Lee administration, seven months into a five-year term is far too early to count the new President out.
Indeed, then Seoul Mayor Lee faced similar low approval and intense public criticism early in his term, yet he went on to become widely popular by achieving his objectives.
The Lee administration must move quickly. The challenges facing South Korea are too significant and potentially dangerous to allow the South Korean leadership to remain complacent or even reactive.
But, South Korea does not have to tackle these problems alone.
Indeed, I detect more US enthusiasm to work with the ROK than in many years. The U.S.–South Korean relationship will be stronger under Lee Myung-bak because he shares common values and policies with the United States to a greater degree than Roh Moo-hyun did.
Lee's pro-market economic principles, understanding of regional threats, and willingness to impose conditionality in South Korea's engagement policy are more in line with principles shared by both U.S. Republican and Democratic leaders.
If President Lee effectively implements these values, South Korea will have a strong bond with Washington, regardless of which party occupies the White House after the 2008 U.S. election.
Working together, and with other countries that share the values of freedom, democracy, and free market principles, much can be accomplished.
Though the near-term political landscape appears somewhat bleak, the horizon appears much brighter than before.
Thank you.
