[The Korea Herald] How can Korea boost its software industry?

By John Power

Korea may be known as an IT powerhouse, but its place in the global software industry remains decidedly modest. Korean software took up less than 2 percent of the global market last year. Even in the domestic market, more than 80 percent of software originates from abroad. In the view of the government, the monopolization of the market by chaebol affiliates, crowding out smaller players, is one of the main reasons for the relatively weak position of the local industry.

“We do not have a very healthy ecosystem in the domestic market,” Kwon Hyouk-woo, senior deputy director of the software division of the Ministry of Knowledge Economy, told Voice. “We do need a very healthy and clean ecosystem where both large and small companies could exist together, but I think in Korea we do not have that, because (of) system integration affiliates of large conglomerates, such as Samsung SDS, LG CNS and SK C&C.”

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Law revision

To address this, the National Assembly in May amended the Software Industry Promotion Act to disqualify large affiliates from procuring government contracts. The change will come into effect in January. The government also initiated the three-year World Best Software project in 2010, committing 160 billion won ($147 million) to supporting local businesses.

“We have changed the law so those big companies like Samsung SDS, LG CNS and SK C&C will not be allowed to participate in most state-initiated projects on the establishment of infrastructure and software,” said Kwon, adding that embedded software, such as in cars, is among the most promising areas for Korea in the ministry’s opinion.

But not everyone in the field is on board with the revision.

Kim Jin-hyung is a professor at the department of computer science at Korea Advanced Institute of Science and Technology. He was behind the establishment of AppCenter Supporters, a KAIST initiative to support software start-ups. The initiative, which receives support from NHN and the ministries of culture and knowledge economy, provides four incubation spaces for prospective entrepreneurs for three-month periods at a time.

Kim said that one of the biggest problems is the low pay and status of Korean software developers. In this context, he said, the revision makes little sense, as small start-ups are currently failing to attract graduates for employment.

“Most of the youngsters want to be paid well and want to work in big industry,” said Kim. “Samsung Electronics needs many engineers. They hire almost all the good engineers. So why would an engineer not want to go to Samsung Electronics, (but) go to a small company working for the government? It makes no sense.”

Compounding the pay issue is the way the government assesses developers’ work experience, added Kim. If a programmer’s company goes under, his experience is seen to die with it, he said.

“When you register with the government, a developer may lose (the value of) some experience because the company he used to work for is bankrupt … So, he cannot get enough pay,” said Kim.

Kim suggested more “subtle” government policies to support struggling start-ups than last summer’s law revision, such as widening the period of the year when government contracts are given out. Currently, the government only assigns projects in the second half of the year due to the way the state budget is handled, a situation Kim described as “ridiculous.”

“(In) the first part of the year, there is no project at all for the company … So they don’t hire, they just hire a developer as a freelancer, a contract for a short period. So there is no way to get trained. They have no chance to get experience in the same area.”

Wrong focus

Kim also indentified software piracy, including by government ministries; a work environment in companies such as Samsung Electronics that discourages the exchange of ideas and creativity; and ministry officials’ bias toward grand-scale projects as impediments to the industry.

Other experts see a problem of education and focus. Lee Jae-jin, a professor at the school of computer science and engineering at Seoul National University, said that the industry has too often been regarded as labor intensive rather than creative. At the same time, he said, the fundamentals of good programming have been ignored in favor of buzzwords such as “fusion technology.”

“We need to educate more high-level architects, not just people for coding,” said Lee. “Most government offices, most high-level offices think software is a labor-intensive industry. But, actually, it’s not. We need to change the view of how to see the Korean software industry.

“First we need to focus on the classical items and we need to do well in those classical areas and then we will move on to those fusion items naturally.”

There are also too few small companies producing new technology compared to Japan, Taiwan and the U.S., according to Lee.

“They just rely on the government funding, instead of focusing on developing technology or selling their product. I think 70 percent of those small companies rely on government funding.”

It is not just the government or industry that needs to rethink its attitude to software, but the public as well, according to some observers.

Perception problems

“The public is equally oblivious to the key role that software plays in the modern age and made little investment,” said Chung In-jeong, a professor at the department of computer and information science at Korea University.

“Most people prefer to download pirated versions of software instead of buying them. This leads to a low volume of sales, and software developers have little incentive to come up with new products when they make so little money.

“The public, for its part, should recognize that software is just as valuable as other tangible goods and they must pay for what software they are using.”

Yet, there remains cause for optimism about the future of the industry.

KAIST’s Kim, whose former students include the founder of KakaoTalk, said that students he sees are now releasing their own mobile applications and games straight from the classroom onto the market.

“They had no way to demonstrate their system (in the past). Teachers said ‘that’s good,’ but that’s all. But now they are putting their software developed in the school directly on the market. Some professors grade by the number of downloads for their project!” said Kim.

Mobile applications, he added, are among the most promising areas for Korean software developers.

“I am always arguing with officials in the Ministry of Knowledge Economy that software is different. You should think about small things. But it should be the best product in the world. Winner takes all. We don’t have to compete in all places, we should give up some places. But if we can be No. 1 in a small section, that’s enough.”

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[The Korea Herald] Should for-profit hospitals be allowed?

By John Power

To many, profit is something to be regarded with suspicion. But it’s rarely more controversial than when associated with health care. Unsurprisingly, then, a decision by the Ministry of Health and Welfare to introduce regulations for the operation of foreign, for-profit hospitals in the country’s six Free Economic Zones at the start of the month has polarized opinion.

To its supporters, the move gave long-overdue effect to the government’s aims to increase investment and competition in the health-care industry. Officially, foreign hospitals have been permitted since the latter days of the Kim Dae-jung administration, which opened the zones to such facilities in 2002. But no such hospital has yet been established, with the previous lack of clear procedures having been cited as an impediment to potential investors. Songdo, the planned city outside of Incheon recently selected to host the United Nation’s Green Climate Fund, is expected to be the site of the first of the hospitals in 2016.

As per the new regulations, at least 10 percent of its staff and almost half of its capital will have to be foreign. This and similar hospitals will also be separate from the Korean national insurance system. Wholly domestic entities will still be prohibited from operating for-profit hospitals.

These government restrictions aren’t just bad for business, say some investors, but for the health-care system itself.

“The real issue in Korea is lack of capital,” a member of a global private equity firm with eight years’ experience in the health-care sector told The Korea Herald. He wished to remain anonymous because of the sensitivity of the issue.

“Most of the medium to small-sized hospitals ―- usually the hospitals with 100-300 beds -― the bankruptcy ratio of those small hospitals is 9-10 percent per year. They definitely need the cash from other investors, but the government made it impossible to do that.”

A surgeon performs spinal surgery on a patient at a hospital in Incheon. Recent moves by the Ministry of Health to allow for-profit hospitals have spurred concerns about the impact on the public health system. (Yonhap News)

What is a very high standard of health care in Korea is not being matched by the funding necessary for ever more advanced technology, he claimed.

“Without capital, it is very difficult to have a high-quality service; high-quality hospitals and more and more hospitals will be in trouble, simply because of a lack of equity. That happened also in the U.S. in the ‘80s.”

Some doctors agree that the present health-care system is too inflexible. Park Han-son, a psychiatrist at Saint Andrew’s Neuropsychiatric Hospital in Icheon, Gyeonggi Province, said that while they had their downsides, for-profit hospitals would benefit Korean health care.

“Basically, I think that more flexible approaches for the future of Korean medical system are highly needed,” said Park.

“The Korean medical insurance system is too rigid. A lot of medical reformers have difficulty making a breakthrough due to legal limitations. The health and medical industry is one of the most conservative fields. All changes can be harmful to someone, and can be beneficial to someone. But we need to make some changes.”

Distinct roles

While indispensible health care should continue to be provided to all through the public system, Park said, profit-seeking operators could have an important role in specialized care and medical innovation.

“Indispensable medical supports like vaccination, maternal health or nutrition should offered evenly by government funding,” he said. “Cutting-edged medical science or special care could be paid by ‘the benefit principle.’ The public health system and private health system have their own distinct roles.”

Critics of the concept of profit-seeking in health care fear that the presence of for-profit institutions will undermine the entire national health insurance system by luring wealthy patients away from the scheme, depriving it of funds. A report by the Hyundai Economic Research Institute forecast that the introduction of for-profit facilities, while having a potential economic effect equaling as much as 1 percent of GDP, would weaken the public health-care system.

Lee Yong-kyoon, a senior researcher at Korea Institute of Hospital Management, said that the recent moves by the Health Ministry mark a fundamental shift in the delivery of health care in the country.

“Currently, South Korea’s health insurance price follows a single insurance price system which is a controlled payment system,” said Lee.

New territory

“On the other hand, foreign for-profit hospitals allowed to enter the Free Economic Zones are not subject to the obligatory contract of the national health insurance. Since these hospitals are outside the boundary of the controlled payment system of national health insurance, they can differentiate medical services offered in South Korea and are expected to be a turning point of activating the market price mechanism in the domestic health industry.”

Lee said this change of approach in health care could lead to tension and alienation between different strata of society.

“The introduction of expensive foreign for-profit hospitals in the zones may possibly draw social conflict and marginalization between the rich and poor. So, public medical support for the socially neglected people should be reinforced.”

Another argument by critics of liberalization of the sector is that doctors could be lured by higher salaries away from national insurance-covered hospitals to money-making facilities, a concern shared by Park.

“It is a major concern when it comes to the introduction of profit-making medical cooperation. We should not rely on the sense of doctor’s Hippocratic duty in maintaining a modern public health system. If we want for more talented doctors to work for public hospitals, we have to pay for it. There is no such thing as a free lunch.”

Inequality in provision of services is another concern. A study in 2010 by the Korea Institute for Health and Social Affairs predicted that the public would be saddled with an extra 1.5 trillion won ($1.4 billion) in health-care costs were 20 percent of the country’s private hospitals to become profit-seeking.

For Park, the solution to concerns regarding health-care polarization is to be proactive in funding for the disadvantaged, rather than restricting certain types of involvement in health care.

“Everyone has a right to get enough food to live regardless of his or her economic status. But it doesn’t mean everyone has to eat the same foods.

The gap between the rich and the poor is an undeniable fact. So, the limited budget of government should be invested for social and economic minorities, not for all people.”

[The Korea Herald] How can Korea end corruption?

By John Power

South Korea, by many criteria, increasingly fits the mold of an advanced nation. But, despite the country’s growing role in international affairs and its status as the world’s 13th-biggest economy, one black spot, at least, challenges that definition: pervasive corruption.

Korea’s public sector ranked just 43rd out of 182 countries in last year’s Transparency International Corruption Perceptions Index. The ranking was a drop of four places from the previous year. Meanwhile, a survey released by the Anti-Corruption and Civil Rights Commission last month found that 40 percent of businesspeople deemed Korean society to be corrupt.

This year alone, several of President Lee Myung-bak’s aides and family members, the ex-head of the Korea Communications Commission and the floor leader of the main opposition party have all been implicated in corruption scandals. The private sector has fared little better: Taekwang Group and Hanwa Group’s respective chairmen were handed down prison sentences for separate instances of embezzlement. At the lower levels of the economy, the Financial Supervisory Service sanctioned some 450 financial company employees for misconduct in the first nine months of the year.

Rotten nation

In a withering assessment of Korean society, the president, himself currently embroiled in a scandal over a now-abandoned retirement home project, last year claimed that “the entire nation is rotten.”

Kim Sung-soo, the executive director of Transparency International Korea, told The Korea Herald that regulations and punishment of corruption were insufficient, largely because of an overly cozy relationship between the government and private business.

“Korea’s anti-corruption policy and regulations are not strong enough, especially for the private sector, to combat corruption. Presumably there is strong lobbying or even bribery from the private sector to the public sector,” said Kim, who believes that a change of power in December’s presidential election would be a positive step forward as Korea’s corruption perceptions ranking has dropped on the current government’s watch. “Money talks too much in Korea.”

All three main presidential candidates, Park Geun-hye of the Saenuri Party, Moon Jae-in of the Democratic United Party and independent Ahn Cheol-soo, have placed heavy emphasis on cleaning up the political and business worlds during their campaigns.

Korea’s rapid development in the latter half of the 20th century came on the back of heavy state involvement in the economy, with crony capitalism a persistent feature of previous dictatorial governments. Economic growth was in the past seen as a greater priority than transparency and the rule of law, said Park Gae-ok, director-general of the Anti-Corruption Bureau of the ACRC.

“In the case of Korea, illegalities and irregularities were tolerated in the course of rapid economic growth and in connection with nepotism and paternalism characteristic of Korean society,” said Park. “It takes a very long time to remedy such problems, and detection and punishment are not a fundamental solution.”

Legislation

Illegality is just one factor in government-business relations with an influence on the scale of corruption. Much of the political realm’s authority to shield the powerful from the consequences of their crimes is enshrined in law. The current and former presidents’ pardoning of numerous political and business figures has long been a source of public antipathy.

Kim Pan-suk, dean of the College of Government and Business at Yonsei University, said that the president was “critical” to efforts to fight corruption.

“In my view, political will is the most important factor in reducing corruption,” said Kim. “If you go back to the Kim Dae-jung regime, he was a very good president and had a good vision to reduce corruption so he promulgated many rules and regulations.”

The Kim Dae-jung administration introduced the Anti-Corruption Act in 2001, and established the Korea Independent Commission Against Corruption the following year. The Lee administration merged the KICAC with two other bodies in 2008 to form the ACRC. The most recent legislative move against corruption was the Act on the Protection of Public Interest Whistleblowers, passed last year. As of October, the ACRC had received 1,216 whistle-blower reports, ranging from issues to do with consumer rights to healthy and safety.

The legislation has resulted in a number of significant outcomes in the public interest, according to Park.

“The new whistle-blowing mechanism has since contributed to correcting violations of the public interest and improving relevant laws and systems,” said Park. “For instance, flaws in reinforcement work for the understructure of a railway bridge were corrected, while legal amendments and introduction of new facilities were made to prevent the infection of the hepatitis B virus through blood transfusion.”

Lee Sang-deuk, the elder brother of President Lee Myung-bak, answers reporters’ questions outside the Supreme Prosecutor’s Office in Seoul, where he was questioned on charges of taking bribes in July. (Yonhap News)

Lee Sang-deuk, the elder brother of President Lee Myung-bak, answers reporters’ questions outside the Supreme Prosecutor’s Office in Seoul, where he was questioned on charges of taking bribes in July. (Yonhap News)

Other anti-corruption measures by the ACRC include a corruption impact assessment of proposed legislation, a yearly assessment of corruption in the public sector, and anti-corruption education and training of public employees.

Culture factor

Park said that his organization is also currently working on the passage of the Bill on the Prohibition of Illegal Solicitations and Prevention of Conflicts of Interest of Public Officials, which would rectify the current situation where officials can avoid punishment if it cannot be established that they provided favors in return for a bribe.

“The bill is aimed at prohibiting malpractices in the public sector, as well as providing specific standards of behavior for preventing the interference of private interests in the performance of public officials’ duties. When enacted, the bill is expected to contribute greatly to preventing and deterring corruption in the public sector,” he said.

Politics and business are not the only explanations offered for the scale of corruption ― many also point to a problem of culture.

“Korean culture is Confucian and authoritarian bureaucracy. Also, school and family ties are very important to (personal) circumstances,” said Kim Taek, a professor of police administration at Jungwon University.

We must renew our social mind and Korean officials and nationwide support for the fight against bureaucratic corruption, for transparency and justice. But Korean political groups, especially the president, parliament members and Korean officials, seek private interest and lack common sense and so they encourage in corruption.”

Yonsei University’s Kim said that an overly partisan media that fixates on certain scandals but ignores others for political reasons added to the lack of transparency in Korean society.

“Under such circumstances, if you investigate something, people may suspect some biased evaluation, so I think this situation should be corrected. The media should be fair and broadly supported by the general public and then investigate certain things and they will have the public’s confidence and trust.”

Institutions, however, can only be so responsible for fixing societal problems, according to some experts. The most fundamental change must ultimately come from the public.

“The most fundamental element in fighting corruption is the change in the mindset of people,” said Park. “Increased soundness and transparency in a society helps create an environment that keeps even customary malpractices and minor forms of corruption from taking root.”