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The main reasons foreign businesses shun investing in Korea are high wages, cumbersome regulations and rigid labor-management relations. This has been the same response among foreign investors in every survey over the last 10 years. Not only have the survey results been the same, but so has the government's attitude, saying each time that it would take steps to rectify the situation.
The latest survey by the Korea Chamber of Commerce and Industry of 845 foreign-invested companies yielded similar results as past surveys. Most respondents (35.6 percent) cited high wages as the largest impediment to investing in Korea, followed by regulations and complicated procedures for authorization (30.1 percent), and difficulties in finding talented workers (20.5 percent).
In order to attract more foreign investment, foreign-invested companies said Korea should ease regulations (40.8 percent), expand incentives including tax benefits (20.7 percent) and simplify bureaucratic procedures (11.5 percent). Considering the fact that bureaucratic procedures are a form of regulation, 52.3 percent of the respondents said deregulation is necessary.
As examples of cumbersome regulations and bureaucratic red tape, foreign businesses said there were too many authorizations to obtain in the process of building a factory, since the central and regional governments had separate administrative procedures. Foreign investors said the process of obtaining such authorizations were too complicated as well. They said there were no manuals outlining which authorizations to obtain, while the process of hiring foreign workers was also too complicated. These are problems cited by Korean companies as well.
Every government since the Kim Young-sam administration created their own deregulation committees and launched task forces to implement such changes. And they said hundreds of regulations had been eased every year. But the total number of regulations has actually risen from 6,974 at the end of 2000 to 8,083 at the end of 2006. While the right hand was easing regulations, the left hand was creating more. There are two types of mentality that drive government workers to create more regulations. One is an outdated sense of superiority that leads workers to believe ignorant private businesses are bound to cause accidents unless they are bound by regulations. The other is a sense of unease over losing their authority that government workers feel each time a regulation is eased, and this leads to a fixation with retaining regulations.
Knowledge Economy Minister Lee Youn-ho said recently that he would formulate a five-year plan to attract foreign investment. The core of that plan is deregulation. But if this task is entrusted in the hands of government workers, as has been the case until now, we cannot avoid repeating the past mistake of easing one regulation while creating another. Businesses that have been the victims of regulations must be allowed to take part in deregulation, which must be wrapped up in the early stage of the Lee Myung-bak administration. A 100-day schedule should be set up for deregulation, with daily assessments of the latest results.
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