Korea Thinks Small

By Donald Macintyre/Seoul

After spending five years as a construction-site manager at Korea's giant conglomerate Samsung, Chung Hwan Oak was used to giving orders, not taking them. So making sales calls for his new catering business was hard on his pride. After bowing deeply, Chung, 49, would pitch his hot-pot lunches--steaming vegetables with shrimp and fiery pepper sauce--then explain how he had lost his Samsung job. Often people slammed the door in his face. Those who listened didn't offer him a chair. The frosty treatment stung, but Chung knew that in status-conscious Korea, Samsung is at the top of the job heap, and catering is near the bottom. "Running a restaurant wasn't a respectable thing to do," says Chung. "The hardest part of shifting gears was dealing with my pride."

That was a year ago. Today customers are flocking to Chung as word spreads about his tasty food. Friends who once scoffed at his restaurant plans now seek his advice on how to set up their own catering enterprises. The definition of what is respectable in South Korea, until recently one of the world's greatest success stories, has changed fast since the economic collapse of December 1997 punched a hole in the Korean dream and created the country's worst recession in nearly 50 years.

Less than three years ago, South Korea joined the ranks of the world's most developed nations, and parents aspired to get their sons into white-collar jobs at such giant chaebol, or conglomerates, as Samsung that dominate the economy. More than a year of life under the yoke of a humiliating $58 billion bailout from the International Monetary Fund has crushed all that. A bright horizon of lifetime jobs and seemingly nonstop growth has suddenly dimmed. In its place: soaring unemployment, a more competitive role in the global economy and diminished expectations for a country that had worked hard for its place in the sun but had also been living beyond its means.

For South Korean President Kim Dae Jung, the crisis has also created an opportunity. Since taking office a year ago, Kim has launched one of the most ambitious economic makeovers any country has ever attempted. His aim is to transform a system built on debt, endless expansion and limitless export markets for industrial goods and consumer durables into a globally competitive economy that is as nimble as the rapidly changing marketplace demands. To make it work, he has placed his bets on creating a flexible, U.S.-style labor market in which companies are free to hire and fire as they please. He also needs people who are willing to adapt to new realities. Koreans like Chung "are breaking the old attitudes," Kim told TIME. "They have the frontier spirit."

The frontier spirit is catching on. A Korean generation that grew up taking rising living standards for granted is now throwing the old model out the window. Out-of-work managers are rolling up their sleeves and starting their own businesses. Some are going back to the farm, reversing the path trodden by an earlier generation as industrialization took off. After watching scores of big companies go under, university graduates are heading in new directions as well. A job at a big chaebol is no longer seen as a ticket to the good life. Young Koreans are choosing smaller, healthier companies, in which they have more chance to make a mark. Says Kim Nong Ju, a career counselor at Yonsei University in Seoul: "It's a tremendous change. Koreans used to want to wear the pin of a big business group because that is what their fiance's parents would look at."

The pressure to adapt will only increase. Korea's economy may be sputtering back to life, but unemployment is expected to hit a record high of 9% this year. Even the country's notoriously feisty unions recognize that the old culture of job security is gone. "Korean society was headed in the wrong direction," says Kim Hyoung Hwan, 33, who started a shoe-repair business last year after losing his white-collar job. "This is a healthy correction."

The honorable status of stable, white-collar jobs reflects deeply ingrained traditions. For hundreds of years, Korea was dominated by a class of Confucian literati who valued scholarship over any kind of manual labor. These attitudes persisted in modern Korea. But they clashed head on with another Confucian mindset when the economy cratered in late 1997. Thousands of men faced the unthinkable: joblessness in a society where a man's worth is still defined by his ability to provide for his family. Ashamed to face their wives and children, men who lost their jobs in the first months of the crisis would dress for work, then while away the day in a coffee shop. Unable to bear the loss of face, some resorted to suicide. Others, such as Chung, decided to swallow their pride.

Chung never imagined he could one day fall off the ladder to the good life. His job brought respect from the neighbors and middle-class comforts--a car, a nice home, money to send the kids to university. There was enough left over for movies and friends' weddings. But "IMF," as Koreans call the crisis, turned Chung's world upside down. As construction orders fell off, Samsung pressured him to retire. He looked for work, but middle-aged managers were not a hot commodity in a recession. When a consultant suggested the catering business, his friends told him he was throwing away his university training. But with his money running low, he took the plunge.

Today Chung and his wife rise at dawn to prepare ingredients for their hot pots. He delivers meals to offices, where customers use a hot plate to prepare their lunches at their desks. Chung's wife stays at their hole-in-the-wall shop, chopping vegetables and tracking orders on a computer. The hours were shorter at Samsung, and the pay was higher. But his friends are envious, worried that their jobs could be next. Despite the hard work, Chung says, his life is better today. "I am so happy," he says, his broad features crinkling into a smile. "I have a tremendous sense of achievement."

Shoe repair-shop owner Kim Hyoung Hwan might be startled to hear himself described as a pioneer of the type President Kim extols. But his shop in the port city of Inchon is a good place to see some of the changes sweeping Korea. After losing his job as a purchasing manager at a now bankrupt equipment-manufacturing firm, Kim noticed people were spending more on shoe repairs to save money during the turndown. Demand was also rising as paternalistic companies cut back on the coupons for new shoes they used to hand out to employees as part of Korea's benevolent corporate welfare system. So over his wife's objections, Kim found a partner and poured his savings into the shoe shop.

A graduate of a technical high school, Kim has brought engineering smarts to a low-tech business. Curbside shoe repairmen are still a common sight in Korea, so Kim's store is a shock to many customers. It is stocked with a huge array of heels, soles and polishes. Shoes Kim has miraculously salvaged sit out on display. Up by the front window is the computer he uses to track orders and customers. Boasts Kim: "They are surprised when I tell them I programmed it myself."

For many young people, the new frontier has been liberating. As a university student, photojournalist Kim Woo Kyoung fantasized about becoming a taxi driver just to have a chance to drive around and meet ordinary people, but he felt social pressure to stick to a narrow range of "respectable" career choices. Recently Kim left a large television network to set up his own media company. Says Kim: "IMF has broken down the university-credential wall."

Corporate Korea may also be getting the message that it needs to change. The Housing & Commercial Bank, for example, was a clunky, state-run institution until two years ago and the only bank in Korea allowed to make mortgage loans to home buyers. Lending money used to be a relaxed affair. Loan officers decided what a property was worth after a quick look at the house and a chat with the owner or a local real estate agent. Assessments were so rough that the bank could count just 30% of the assessed home value as collateral, and could only lend accordingly. The system was also open to bribery--slipping an envelope full of cash to a bank official was a good way to boost your property value, according to Kim Jun Tae, head of the now privatized bank. "The culture was very bureaucratic," says Kim. "I told people we have to be doing business, we have to sell things."

Since Kim became chief executive last year, that's exactly what bank employees have been doing. Property assessments were computerized with help from U.S. consulting firm McKinsey & Co., and loan officers must spend their time drumming up new business. Or else: 30% of their paycheck is tied to performance. Improved efficiency means homeowners today can get loans of up to 80% of the assessed value of their homes. The bank's president and CEO wants his employees to think like entrepreneurs and sends frequent e-mail to hammer home the message. He even brings in motivational speakers from other walks of life--unheard of in the old days--then broadcasts the talks to every bank branch before opening hours. A Chinese chef recently shared his views on survival in the new global economy, reminding the bankers that "if you don't make the best Chinese food, you won't survive."

The government is prodding banks and companies that are less reform minded to start using the same menu. It has forced tough new regulations to curb the excessive lending that helped push the economy to the edge of collapse, shut down deadbeat firms, and opened the clubby world of finance to overseas ownership (foreigners now own about 58% of the Housing & Commercial Bank).

The dramatic reforms have helped spark recovery sooner than most experts expected. The government predicts that growth in South Korea will bounce back to an annual rate of 2% by the second half of this year; by contrast, the economy shrank 5.9% in 1998. "There is no country in the OECD that has made such rapid changes," says Donald Johnston, secretary-general of the Organization for Economic Cooperation and Development. "Historians may look back and say this crisis has left a healthy legacy."

Yet it also promises to be a painful one in a country where everybody from workers to executives took job security for granted. President Kim's policies are pushing up unemployment, at least for the short term. The government prediction of 9% unemployment this year is stunning in a country used to levels closer to 2%. Kim Jung Mi, 30, was fired without notice last June from her sales job at a small Seoul bookstore. In a country where women occupy few positions in the top levels of business, they are often the first to get the ax when restructuring starts. As a never married mother, Kim had a tough life; her conservative family shunned her when she decided to keep her child seven years ago. But nothing had prepared her for the sudden dismissal. "I felt so betrayed," she says.

Kim stopped eating and slipped into a depression. A friend had to care for her son. Eventually friends found her a psychiatrist willing to provide free therapy and medication. Since January she has been working as a clerk in a government-sponsored public works program, which pays for food and the tiny, unheated basement apartment she moved into after being laid off. But Kim doesn't know what she and her son will do when the money from her subsidized program runs out.

The crisis has brought anguish for countless others as well. Suicide, alcoholism, divorce and crime have jumped nationwide in the past year. Shelters for out-of-work businessmen have sprouted in Seoul and other cities. In a country in which corporations traditionally provided the welfare system, the government is trying to build a social safety net from scratch. This year spending on job training and support for the unemployed is expected to rise 39.8% and 34.8%, to $1 billion and $5 billion, respectively. But it is not clear how long the government can contain the resentment of those who don't have the skills to "shift gears." South Korea's cantankerous unions kept a lid on protests last year, fearful of a backlash from the public. But in February they showed their patience was wearing thin when they walked out of a three-party committee--representing labor, government and companies--set up last year to navigate the crisis. The muscle flexing remains low key for now, but if Seoul doesn't get the message, the unions promise to escalate their confrontation with government.

The values that support the unions--and the rigid attitudes of white-collar workers--are changing, even more for the younger generation. When former construction boss Chung lost his job and his status, he and his wife were worried that they would be scorned by their three children. The kids surprised them. The Chungs' teenage son helps his father with deliveries. When Mrs. Chung fretted about their drop in status, the teenager reminded his mother of a story she told him as a child about how the local cleaning man was not born a cleaning man but was just playing the hand fate had dealt him. The Chungs' daughter, 20, a sophomore attending Yonsei University in Seoul, comes by to help her mother dish out bowls of steaming white rice to go with the hot pots. "My daughter said what we're doing is admirable," Mrs. Chung recalls. "We both cried when our children told us how proud they were." As the Chungs are discovering, the pioneer spirit can accomplish a lot.

--With reporting by Stella Kim/Seoul

With reporting by STELLA KIM/SEOUL