Asian Tiger or Asian Kitten?
As we rumbled, whirred, and raced precariously between two black taxicabs, the flashing neon signs strained to hypnotize us through the windowpanes of the dilapidated city bus.
If you are lucky enough to catch a glimpse of the hillside hidden behind the flurry of activity, colorful construction cranes dot the background, erecting never-ending rows of artificial mountains.
And like gigantic dominoes, generations are born and raised in these high-rise apartments, hundreds of feet above the sleepless, restless city below.
This is Seoul, and it is hardly the cookie-cutter techno-utopia it has earned a reputation for. Korea's bustling megalopolis does not have Beijing's endless supply of manual labor perpetually migrating from the countryside, but neither does it have Tokyo's autonomous robots strolling the city sidewalks.
Sure everyone has the latest 3G powered handheld phone with HSDPA, filled with high-resolution cameras, DMB, and a large capacity flash drive crammed into an impossibly svelte form factor.
And 20,000 Internet cafés certainly do reside within every nook and cranny of the twisted, unorganized metropolis, nestled between karaoke bars, beer hofs, and massage parlors.
There are even several television shows dedicated to the burgeoning market of e-sports, professional cyber athletes, and leagues sponsored like NASCAR teams — corporate patches, starry-eyed interest stories, rabid fans, the whole nine yards.
But to the chagrin of the technorati, it is not the here-and-now futuristic home of Blade Runner or the meatspace equivalent to a William Gibson inspired metaverse.
And despite naïve rhetoric suggesting otherwise, it will probably never amount to anything more than the testing ground for new-age gizmos and gadgets.
At least, not until the government stops trying to run the show.
You say chaebol, I say chaibol
For those familiar with an older, Western corporate world previously filled with vertically oriented monoliths that have been demolished through creative destruction and disruptive technologies, one should note that various strongholds and enclaves of such reified machinations still exist in the East.
Chaebols, Korean "Big Business" conglomerates, are typically comprised of the worst parts of Eastern feudalism and Western bureaucracies. Like their Nipponese counterparts, they are similar to the top-down, cradle-to-grave keiretsu for the Korean peninsula.
They are flush with what Sean Corrigan and others have labeled "dishonest money" — monies that come directly from the coerced taxpayer — unearned in a traditional marketplace.
Furthermore, the South Korean government, which itself played an integral part in the Asian financial collapse of 1997–98 still has a heavy hand in innovation by massively subsidizing and favoring the products and services developed by chaebols such as Samsung, LG, SK Telecom, and Hyundai.
Recently The Economist published a report ranking the health of IT industries by nation. These figures, like many aggregated statistics are misleading. For instance, the weighting of various figures favors an IT infrastructure over a legal environment that allows countries like South Korea to stand out despite its non-transparent and inconsistent legal system. If the weightings were changed, South Korea could easily drop from 3rd to below 10th.
In fact, despite the rose-tinted report, according to foreign direct investment figures, capital expenditures from foreign firms have dropped from $9.2 billion in 2004 to $3.6 billion in 2006. Among other reasons cited for this large decrease are high levels of regulation, "[f]ickle economic policies, militant unions, complicated authorization procedures and backward education and living conditions [that] haven't changed at all over the last five years."
Presumably to counteract this trend, in addition to signing a half-baked bilateral free-trade agreement with the United States, the South Korean government is hastily trying to attract foreign investment by easing "regulations on private equity funds" by 2010 and approving "the setting-up of hedge funds in South Korea by 2012."
But is this enough?
Cosmetic tweaks and institutional fixes
Volumes have been written about the Asian financial crisis, and this article could hardly do that complex topic justice. In Korea, fingers were pointed, laws were written, and justice was supposedly served, with yet more regulation and intervention as the savior.
Much like the dot-com bubble bursting at the early part of this decade, the root cause can be traced back to government intervention in the form of artificially low interest rates and the resulting misallocated capital.
Like all central banks, the Bank of Korea is politically controlled and over the past 50 years it has essentially held the "status of a printing company, churning out money at the command of the government." This in turn has fed "unbalanced economic growth and structural corruption." And ultimately, "the BOK drove the national economy to collapse."
And due to the integral nature the chaebol plays, the deleterious effects from the ensuing economic collapse (e.g., default on bad loans) could be felt in every sector of the economy and society. The fallout would have surely been worse, but the government was propped up by charity via nationalistic rhetoric:
The late '90s financial crisis was widely viewed as a Western assault on Korean industry, and during its worst moments, Koreans rallied in reply to a call from Kun-hee Lee and Woo-choong Kim, head of the wildly over-indebted and now-defunct Daewoo Group, to support the won by exchanging their gold for the country's increasingly worthless currency. Some 40,000 Koreans turned in athletic medals, family heirlooms, even wedding rings. The response was so overwhelming that in two days the price of gold fell to its lowest point in more than a decade.
State-subsidized Daewoo was involved with such poor financial dealings and shoddy business practices that they ultimately went bankrupt; and both Samsung and Hyundai are under fire for bribing government officials for government contracts.
Building dragons, pyramids, bombs, stadiums, and rocket ships
Earlier this year Anthony Gregory put forth the idea that with a reasonably sufficient budget, a government could probably build a dragon, scales and all.
Ignoring the fairy-tale implications in this mental exercise, statists of all stripes can certainly turn to ample historical precedent to support just about any public-works fantasy.
From building pyramids for deities, designing nuclear bombs, conducting missions on the moon, and erecting athletic compounds, credulous state crafters believe no project is too large for humanity to undertake — so long as someone other than the politicos finances it.
With the retrospective knowledge of having "overinvested in heavy industry sectors" Korea's political leaders vowed to forge ahead and instead invest in information and communication technology. Thus, following the meltdown, key government leaders believed that developing, promoting, and deploying projects such as universal broadband access would help enable the country to compete on a global scale.
Among other success stories of its postwar economy, technophiles and their political antecedents — technocrats — approvingly cite the heavy government intervention for the purported techno-paradise for which Seoul has become a synonym.
This too comes at a price, because while cities such as Seoul may indeed be more wired, with relatively large-capacity connections, what is glossed over or ignored entirely is how this was achieved. In a word: subsidies. The South Korean government took tax revenues and redistributed the wealth — at least $24 billion worth — to broadband endeavors. And in their minds, the ends justified the means.
The unseen effects of this artificial reallocation are still being unraveled today.
Perhaps one of the best cases highlighting this capricious spending frenzy has been a flop: Wibro (WiMAX is the Western equivalent).
The government now allows the carriers to subsidize subscribers at $105 per handset (money that is nominally paid by the carriers, but since the carriers are themselves heavily subsidized by the government, the bottom line is tax-subsidized cell phones). But despite millions of taxpayer money spent developing and deploying the project, the service has only 1,000 subscribers after about a year.
The shortsighted business model and lack of individual responsibility is cockamamie from a profit-seeking perspective, but then again, Samsung, Korea Telecom, SK Telecom and others do not necessarily need to be profitable as they receive massive government bailouts in the form of subsidies and artificially low loans to continue developing and deploying a system the market has rejected.
Reform the reformers
Aside from direct government intervention through laws and regulations, subsidies have created artificial barriers to entry in the numerous markets that the chaebols compete in; incumbents are thus insulated from outside market forces.
What goes left unsaid is that every government is itself an inefficient chaebol. Vertical integration is simply another name for the aggregate of "public goods" provided by governments because the state continually takes on responsibilities and enterprises that could otherwise be managed through the specialization of private, independent firms.
So why stop at unbundling the chaebol, when the most effective long-term solution is disassembling the entire state apparatus, whose very existence allows chaebols to exist in the first place?
 Unsurprisingly, the Ministry of Information and Communication wants to help place a robot in every home by 2020 — at the expense of taxpayers. With a war chest of over $1 billion, the ministry has set its sights on financing basic research. See also, "How much should companies spend on research and development?"
 For a concise history detailing the rise of these cafés colloquially called PC Bangs, see "'PC-bang' Brought a 'big-bang': The Unique Aspect of the Korean Internet Industry," by Byungho Park and Thom Gillespie.
 Inspired in part by Neo-Confucianism, a form of life-time tenure exists in many of these firms, in which the "collegiate-educated salarymen" play the role of tribal chiefs, who in turn set the tone both in and outside of the office including the copious working hours. It is an institutionalized position that can only exist through state subsidies and protectionism (i.e., the parent companies would need to restructure positions and divisions to deal with the dynamic of true competition, both foreign and domestic).
 Two articles detailing the hierarchical power of the chairman include, "The Seoul of Design" and "Seoul Machine." Furthermore, "South Korea's Digital Dynasty" by Michael Kanellos also provides a good overview of both the history and culture involved with these issues. Conversely, this New York Times piece ("In Korea, Bureaucrats Lead the Technology Charge") gushingly approves of the government intervention.
 Besides, ignoring how the foreign investment figures are aggregated, what level is the optimum level of investment? Why is "more" considered better? Also, why measure innovation in terms of patents? What of all the innovations that are never patented, such as many Web 2.0 services?
 The recently signed Free Trade Agreement between the United States and South Korea is no different than managed trade in the tradition of NAFTA or the WTO. In other words, government regulated trade, which is anything but free (1, 2, 3).
For instance, one particular clause dealing with Intellectual Property, a concession that the Korean side of the agreement includes is abolishing Fair Use along with carte blanche closure of many web hosting businesses that permit copyright infringement. Long-term innovation could be stymied due to unseen consequences of such regulations, as seen by the DMCA.
 Regarding the liberalization of investment and financial services, see "Korea Capital Market Consolidation Act brings opportunities, challenges" and "South Korea announces incentives to create Asia Financial hub." Note: while some of the telecom industry was truly deregulated, much of the market was merely reregulated; see "Understanding South Korea and Japan's Spectacular Broadband Development" (PDF).
"government influence in finance is becoming stronger. Although distressed financial institutions are being closed, merged and sold overseas in homage to financial reform, government influence is, in fact, being fortified. The advent of the omnipotent Financial Supervisory Commission, in particular, is enlarging the source of non-performing elements. The government should sever its chains of control."
 Just as a loose money policy by the Federal Reserve artificially flooded the market with "cheap" capital, spurring a malinvestment that resulted in the dot-com bust, so too did policies enacted by the BOK. Therefore, exactly how different was the Asian financial crisis from the inflationary crisis spurred by the malignant Fed during the 1920s, early '70s, and again in the late '90s? See more on the Austrian Business Cycle Theory: 1, 2, 3 (PDF).
"South Korean companies (in particular the famous chaebol) were suffering before the crisis from chronic undercapitalization and from overinvestment in heavy industries sectors. Operators were seeking to gain market shares more often than not at the expense of profitability. Moreover the allocation of bank loans was orchestrated by the State to favor so-called priority sectors. Banks were so protected that they did not feel the need to develop their methods of credit analysis and risk management."
 Frédéric Bastiat penned perhaps the most illuminating discussion on the unseen effects of economic interventionism (i.e., opportunity costs) in his seminal paper, "What Is Seen and What Is Not Seen." Among other things, he posits what is arguably the most concise division between good and bad policy making:
"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."
 In the past, the South Korean government has been known to fine companies for providing handset subsidies. However, their current hands-off policy (pro-subsidization) is more in line with their formal decriminalization of this particular business strategy.
 Despite heavy marketing and promoting (1, 2) and subsidies, it has garnered roughly 1,000 subscribers through Q1 2007. See "WiBro Crisis as Service Flops in Korea" and "Korea Telecom to Relauch WiBro."
In addition to outright subsidies, another fund for their national broadband policy included artificially low-interest rates:
Most of the country's consumers were already served by the dominant carrier Korea Telecom, but the government encouraged competitors with a low-interest loan programme for companies that built their own broadband facilities. The programme offered $77m in two years alone, with a particular focus on rural areas.
The government offered other incentives for Korea Telecom. Once a state-owned monopoly, the company began the transition to private hands in 1993. But the government, which retained some shares until 2002, allowed the process to become final only on the condition that Korea Telecom bring broadband — defined as connections of 1Mbps — to all the villages in the country.
Some technologists and senior managers believe that the technology deployed over the past decade could not have been orchestrated by private entrepreneurs:
"Had it not been for the government leadership, they would not be where they are today," said David Young, the director of technology policy for Verizon Communications. "There is a lesson to be taken there in setting a goal and providing support to achieve it."
 The same problem befalls the broadband market in North America as well. There is no reason to believe that privately financed, unsubsidized/unprotected enterprises could not have developed and offered the same high-capacity services (profits act as incentives). And liberalization is beside the point, because the unseen effects of the tax-financed broadband rollout are forever distorted. See "Who Owns the Internet?" and "The Spectrum Should Be Private Property."
 John Hagel's seminal piece on "Unbundling the Corporation" dissects some of the problems plaguing vertical integration in an ever increasing world of specialization. In essence, he proposes that in an era of decreasing transaction costs — which he calls "interaction costs" — firms should move towards specializing in core areas, rather than diverting productive resources to unrelated activities.
Regarding lawmakers, Roh Moo-hyun is the current president of South Korea. Among other issues, one of the pillars of his election platform included reforming and "reining in" the disparate power exercised by chaebols. See: 1, 2, 3.