A lesson for John Key from South Korea

This is John Key’s big month. The budget on Thursday week is the pivot of his government’s first term, a major test of his “ambition for New Zealand”. But what is his ambition?

His government is busy. The flow of legislative and regulatory changes designed to make doing business easier and more profitable and enhance sectoral opportunities has momentum. National parks are to be prospected and explored.

Add tax, the budget’s centrepiece. Simon Power has a big legislative programme to boost capital markets. A “welfare working group” is in action. This is a busy government.

But is Key changing people’s heads? Is he shifting the national mindset? Are New Zealanders, inspired by Key, recovering some of the “progressive” notions that hacked out of virgin bush one of the world’s richest economies within 100 years?

New Zealand, though still rich, is no longer in the elite club. Key fought the 2008 election on that relative slide. Much of our economic base is still land, sea or underground resources. That makes us a developing country — a rich developing country.

A century ago the focus was assertively “developing”. Now it is defensively “rich”.

Contrast Korea, where I was briefly last month.

Sixty years ago, Korea was on the brink of a devastating war which hacked it in two. It was one of the world’s poorest places. Now South Korea is in the Organisation for Economic Cooperation and Development (OECD), calls itself developed (except for its farming) and has an expanding aid programme to poor countries.

Sandwiched between wealthy Japan and enriching China, you might expect much fretting about its security and economic future.

There is certainly a lot of analysis, including of what will happen when the North Korean regime eventually decays or suddenly disintegrates and Korea unites. And there is some fretting — about China outgunning Korea’s big modern firms, about the staggering cost of reabsorbing the backward north, where incomes are one-twentieth of the south’s, and about the geopolitical manoeuvring between China and the United States.

But analysts, politicians and businesses now also see opportunities — in the north’s cheap labour force, minerals and direct land access to the Chinese economy, where it has large investments.

And there is a confidence that Korea can consolidate its still fairly new niche as an increasingly high-tech economy and outrun the China challenge.

The confidence comes from the massive chaebol conglomerates’ considerable and growing research capacity, their own awareness of their vulnerability and their capacity to organise. The government is business-friendly. Education is valued — though, some say, still too regimented to produce truly innovative thinking. Koreans say they have no resource but between their ears. Singapore knows about that. Both have become rich on their wits.

That poses a question about Key’s enthusiasm for a Saudi salvation: do gold and oil strikes make you durably rich? Or is it how you use what is between the ears that counts in the long run?

Here’s a challenge for Key from Korea: define and build on “green growth”. Korea’s Prime Minister set that challenge as chair of an OECD ministerial meeting last June. An interim report last month canvassed some ideas.

South Korea is not green. A haze obscures the hills and mountains which take up 70 per cent of its land mass. Buildings and transport infrastructure trample the flat parts. Vast areas of shoreline are landfill: just carve off a hill and spread it on shore. “Green growth”?

But it is building the world’s biggest tidal electricity plant and transforming a heavily landfilled estuary back from freshwater to saltwater and changing the ecosystem in the process. The giant steel company, Posco, trumpets a low-carbon iron-making process.

President Lee Myung-bak is hell-bent on cleaning up four major rivers — even though wetlands will go and Korean’s growing band of environmentalists (another sign of developed-economy status) are outraged. As mayor of Seoul, Lee ruthlessly uncovered and restored a 6-kilometre stretch of a stream that runs through the city, displacing large numbers of angry small stall holders.

This no-holds-barred determination is cause to question what would otherwise be an automatic disbelief that this obsessively enriching society can generate “green” growth. If Lee and the chaebol decide to invent it, the recent steep upward track record in high-tech electronics suggests they might, preposterously, succeed.

Here the Key government worries that “green” might stunt “growth” and the Greens (though changing) worry the opposite. That’s “rich” defensiveness, not “developing” assertiveness.

Changing the mindset from defensive timidity to assertive confidence is Key’s big challenge in his big month — and a litmus test for his busy budget.

* The Korea Foundation, an arm of the government, funded my visit. But most interviewees were suggested by outsiders or were themselves outsiders.