Copyright: Shutterstock/Son Hoang Tran

SHIN Song-bum, Minister - Permanent Delegation of the Republic of Korea to the OECD

About a month before the WHO declared COVID-19 a pandemic in 2020, the Korean movie “Parasite” won four awards, including the Best Film Award at the Oscars. The global popularity of the Korean boy band BTS is greater than ever, having topped the Billboard chart for many weeks in a row. Not to mention the popularity of K-dramas with worldwide records on platforms like Netflix. Korea’s experience in developing the cultural and creative sectors (CCS)1 has been remarkable and unique in terms of its scale and speed. In the cultural contents industry, including films, videos, games, and drama, Korea has 2.6% of the global market share, which is the seventh-largest in the world, generating about USD$ 114 billion in sales, USD$ 10.3 billion in exports, and 680,000 jobs. Moreover, it has been constantly and rapidly growing with an expected continued growth of 4.4% through 2022.2

Figure 1. Global market share (2018, Left, Unit: %) and growth in the Korean cultural contents industry (2014-2019, Right, Unit: Korean Won)

Source: KOCCA.

Hallyu: Korea’s success story building on the OECD membership

When Korea joined the OECD in 1996, the Korean CCS were in a nascent stage, without much global recognition. The remarkable growth of the Korean CCS, mainly driven by the success of Hallyu or K-wave, has been made in tandem with a series of reform measures that the Korean government took to further globalise and upgrade its economy in accordance with the policy recommendations of the OECD.

Just after Korea joined the OECD, the Korean economy suffered severely from the Asian financial crisis in 1997—still perceived as the single most daunting challenge in the modern history of Korea—which devastated its entire economy. Some alleged that the government’s hasty decision to become a member of the OECD, known as “the rich countries club”, provoked the crisis, with scathing comments that “Korea popped the champagne too early.” Nonetheless, most Koreans were united to overcome the unprecedented difficulties by voluntarily participating in the efforts to repay the loan borrowed from the IMF. Ordinary citizens joined the nationwide gold-collecting campaign by donating to the government even gold rings they had received as their first birthday gift. In response, the Korean government took it as an opportunity to overhaul the economy through a series of drastic reform measures by faithfully complying with the OECD standards and commitments, rather than resorting to temporary relief measures to protect domestic industries. Thanks to its painful efforts, Korea succeeded to overcome the crisis by repaying the debt to the IMF much earlier than scheduled.

Looking back on those difficult times, I believe that valuable lessons can be drawn from the very spirit the Korean people demonstrated at the time. The financial value of the gold rings collected per se may have been insignificant in relation to the amount of national debt owed to the IMF at the time. However, the united spirit of the Korean people to overcome the challenges by sharing pain together was enough to make it possible for the Korean government to successfully transform challenges into opportunities, by restructuring its economy and ultimately making its economy more resilient to the following crisis.

It is noteworthy that Hallyu was born in the late 1990s amid this historic turmoil. Twenty-five years ago when Korea joined the OECD, a wave of globalisation was sweeping over the world in the aftermath of the Cold War and the creation of the WTO in 1995. The globalisation presented both challenges and opportunities to all countries. In response to this megatrend, Korea decided to join the OECD with a strong aspiration for reform, openness and transparency. Since its accession, Korea has not only accepted the OECD policy recommendations but has also set a good example by continuously pursuing domestic reforms as a full-fledged member of the organisation. The success story of Hallyu is said to be one of those that eloquently testifies that it was the right decision for Korea to join the OECD.

The Korean government’s decision to liberalise its domestic CCS, such as films and music, provoked strong resistance from the groups affected by the measure. For example, in September 1988, when movie theatres started showing “Fatal Attraction,” the first foreign film distributed directly by United International, Korean distributors staged militant protests by releasing snakes, setting fire in the theatres, and tearing off the screens. Moreover, when the Korean government decided to halve the screen quota in 2006, many artists and employees in the sector took to the streets protesting that the inundation of foreign cultural contents to the domestic market would push the domestic industry to the verge of collapse. Contrary to the public concerns, however, the market share of the domestic films rose to 50-60% and has drastically increased in exports since then.

A similar thing happened upon the decision of the Korean government to liberalise the import of Japanese cultural products from 1996 to 2004. Before then, many voiced their concerns that the inundation of Japanese movies, games and other cultural content would demolish the nascent Korean CCS. In fact, Hallyu began to flourish in Japan and other Asian countries afterwards.

Success factors of the Korean CCS

Despite early arguments suggesting that Hallyu was a temporary fad, it turned out to be sustainable and long-standing. Analysing what are the main factors leading to the Korean CCS’s success would be meaningful, especially so that we may draw some valuable lessons in coping with the COVID-19 crisis.

Much excellent research has already been made into this topic. Some argue that Hallyu is a private initiative, rather than a public one, attributing its remarkable growth solely to the active roles of the private sector and the charm of the content itself. Others focus on the government’s reform measures of the CCS, claiming that such measures as reinforcing the digital infrastructure and implementing well-balanced copyright policies regime, and lifting bans to liberalise CCS markets, played a defining role in enhancing the competitiveness of Korean CCS. Despite some differences, I believe that many share the view that the series of reform measures that the Korean government took to further digitalise and liberalise its economy, in response to the 1997 financial crisis, contributed to the birth and ensuing growth of Hallyu.

The first factor is digitalisation. Jimmyn Parc and Hwy-Chang Moon argue in their paper3 that K-pop is a prime example of accumulable cultures which showed greater effectiveness of private initiatives over public ones. Nonetheless, the paper acknowledges that the measures of the Korean government to upgrade its Internet infrastructure following the 1997 financial crisis enhanced K-pop’s attractiveness and global popularity. The early investment of the Korean government in the digital infrastructure in late 1990s fostered an enabling environment for Korean music companies to take advantage of the rapidly changing process of producing products from analogue to digital. It was only after this period that K-pop gained international popularity. A recently published OECD report4 shows that Korea’s digital infrastructure, as measured by the share of households with broadband access, is higher than in any other OECD country. Korea is also ranked highest among OECD members in its territorial equality in those household shares.

Figure 2. Share of households with broadband access, TL2 regions
2019 or Last available year

Note: TL2 regions. 2020, or latest available year, 2019: Canada, France, Italy, United States ; 2018: Israel, Japan, Korea, Mexico ; 2017: Chile ; 2016: Australia.

Source: OECD (2021), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en.

The second factor is globalisation. Sébastien Miroudot, senior policy analyst at the OECD, used a Global Value Chains (GVCs) approach in order to explain the success of the Korean motion picture industry5. His paper presents some empirical analyses on the role of increasing globalisation of Korean movies or their integration into the GVCs as a main success factor. Miroudot says that such strategies as co-production with foreign partners, a relatively concentrated vertically integrated industry structure, and the creation of a global brand have been very effective in enhancing comparative advantages. In particular, the large vertically integrated industry structure began to be established along with the emergence of the new large companies in the wake of the 1997 Asian financial crisis. The paper concludes that the most positive aspect of government intervention in the movie industry does not lie in protectionist schemes, such as screen quotas, but in the creation of policies that both help establish a conducive business environment and open the Korean economy to foreign competition.

In a nutshell, in response to the Asian financial crisis, the Korean government took advantage of the challenges to promote the structural reform of the industry by providing it with long-term cultural digital infrastructure and fostering a business environment for its globalisation, rather than resorting to short-term relief measures. Despite daunting challenges brought by the crisis, the Korean government succeeded in transforming challenges into opportunities to develop CCS.

New challenges of Korean CCS brought by COVID-19

However, the Korean CCS are facing other challenges. Although it is hoped that the pandemic situation will improve soon thanks to vaccines, COVID-19 is likely to have long-lasting effects on all aspects of our lives and livelihood, making it inevitable for the CCS to continue to be transformed to adapt to the new megatrends brought by the pandemic. These challenges are epitomised by “4Ds”: Digitalisation, Divide (Inequality), Demographic Change (Aging), and (increasing) Debt.

In the face of the COVID-19 crisis, the CCS are one of the hardest-hit sectors, with venue-based sectors (e.g. museums, festivals, theatres) being the most affected due to social distancing and travel restriction measures. As in many other OECD countries, Korea’s CCS are still vulnerable to the pandemic crisis, as the shares of self-employed and independent workers are higher in CCS than the rest of the economy. Government welfare programmes are less well adapted to non-traditional business models and employment contracts. Due to the widespread confinement and social-distancing measures, those working in venue-based activities were massively laid off.

Digitalisation shows distinctly winners and losers of the CCS. The COVID-19 has further widened the digital divide, aggravating the already increasing level of inequality in Korean society. A few who adapted swiftly to the trends by taking advantage of digital platforms have reaped the benefits resulting from the sharply increasing demand for “un-tact” content, while many lost their jobs and income.

Korea, whose fertility rate was 0.84 in 2020, is one of the most rapidly ageing countries. The pandemic is expected to further reduce the rate in Korea, as in other countries. With the massive retirement of the first Korean baby-boomer generation, those born between 1946 and 1964, ageing of the Korean society has accelerated drastically, increasing budgetary pressure and welfare costs while making the poverty and suicide rate of senior citizens the highest in the OECD. Generation X, those born between 1965 and 1980, started to take a leadership position in the society, while the millennial generation born between 1983 and 1996, who led the K-pop boom in 1990s, has been taking an active role in the present digital drive of Korean society. Owing to decreasing job opportunities, however, many millennials are confronted with increasing unemployment.

Due to the expansionary macroeconomic policies to tackle the pandemic at its initial stage, an increasing national debt level and possible inflationary risk have been constraining fiscal and monetary policy space, which makes structural reform measures more attractive as unique policy measures to “build back better” from the crisis by enhancing the competitiveness of the Korean CCS.

Korean government’s response to challenges brought by the COVID-19

While focusing on short-term relief measures to alleviate the immediate difficulties of the CCS, the Korean government is pursuing medium and long-term restructuring strategies for the CCS to continue to thrive. In September 2020, the Korean government announced a Digital New Deal strategy for promoting culture and creative industry.6 It focuses mainly on structural reform of the sector to enhance its global competitiveness. According to the strategy, the government plans to expand infrastructure for generating online content, un-tact performances, and even next-generation content using AI, VR, and AR technologies. It also aims to improve the regulations and policies for copyright and other intellectual property aligned with the digital transformation. All in all, the Korean government aspires to utilise the digital-content industry as a new engine for growth.

Digital New Deal Strategy for Culture and Creative Industry as of Sept. 2020

Vision

Achieve Digital New Deal by strengthening innovation capacity of the content industry

Targets

  • Restore content industry ecosystem and enhance cultural technology and labour

  • Secure content competitiveness through speedy response to un-tact environment

  • Occupy global market through bold investments in next-generation content development

Strategies

Digital transformation in response to shift to un-tact environment

  • Build infrastructure for exclusive online performance distribution infrastructure

  • Support content production finance

  • Support simultaneous content-platform growth

  • Align copyright system compatible to changing digital environment

Cultivate next-generation content market

  • Develop immersive content and increase investment

  • Cultivate next generation game market

  • Construct data AI appliance base and foster specialists

  • Conserve cultural heritage of new digital technology base

Strengthen K-content competitiveness in world market

  • Expand usage of content IP market

  • Proliferate New Hallyu by systematic support to expand overseas

  • Restore mutual cooperation of content ecosystem

Overcoming challenges brought by the COVID-19 with the OECD

The strategy of the Korean government is well aligned with the recent policy recommendations published by the OECD for the CCS of member countries. The OECD emphasises not only short-term relief measures for the CCS but also medium- and long-term structural reform measures. The recommendation includes 1) introducing measures for the recovery to help self-employed and other small firms to adapt structural changes, including digital tools, 2) widen innovation strategies and policies to better account for the role of cultural and creative sectors, 3) invest in digital infrastructure that can amplify advances in CCS, 4) promote greater complementarities between CCS and other sectors, such as education and health-care services, 5) support cultural and creative entrepreneurship as catalysts of new models of economic and social-value creation.7

It is undeniable that the Korean CCS has become a source of innovation and a significant growth engine for the Korean economy. This success might not have been possible without the drastic reform measures taken by the Korean government in response to the challenges brought by the 1997 Asian financial crisis. The united spirit of the Korean people to overcome the challenges and transform them into opportunities made it possible for the Korean government to reform the sector successfully. There is a famous Asian proverb that when the storm blows, the foolish one builds wind shields whereas the wise one spins a windmill. Certainly, the Korean people demonstrated the wisdom of riding over the tides of globalisation to overcome the challenges brought by the Asian financial crisis. And they managed to do it very successfully with the help of the OECD.

As the pandemic crisis presents Korean CCS with challenges and opportunities different from those of the past, the policy strategy of the Korean government in pushing forward the structural reform should be adjusted to the current political and economic circumstances. Although Korea’s past achievements in the CCS cannot vouch with certainty for future success, many lessons can be drawn. I believe one important pearl of wisdom we may draw from Hallyu’s success is that challenges such as globalisation and digitalisation brought by the crisis can also be utilised as the very strategies to overcome them. New challenges accelerated by COVID-19, namely the 4Ds, pose a threat not only to the Korean CCS, but also to those of all countries. Last year, BTS made a historic speech at the UN saying, “Life goes on, Let’s live on,” touching the heart of many youths suffering from the COVID-19 crisis. I believe that one of the strengths of the Hallyu is its message of calling for a united global spirit to overcome challenges.

Notes

1.

According to the definition of the CCS, the CCS include architecture, archives, libraries and museums, artistic crafts, audio-visual, tangible cultural heritage, design, festivals, music, literature, performing arts, publishing, radio and visual arts, and fashion. (Source: OECD (2020), "Culture shock: COVID-19 and the cultural and creative sectors", OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://doi.org/10.1787/08da9e0e-en.)

2.

Statistics published by the KOCCA, Korea Creative Contents Agency, which include only the cultural contents industry.

3.

Jimmyn Parc, Hwy-Chang Moon (2019), Accumulated and Accumulable Cultures: The Case of Public and Private Initiatives toward K-Pop, Kritika Kultura 32(2019):429-452, Ateneo de Manila University, http://journals.ateneo.edu/ojs/kk

4.

OECD (2020), "Culture shock: COVID-19 and the cultural and creative sectors", OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://doi.org/10.1787/08da9e0e-en.

5.

Sébastien Miroudot (2019), “Hallyuwood, Korea’s Comparative Advantage in the Global Motion Picture Industry”, Ateneo de Manila University, http://journals.ateneo.edu/ojs/kk

6.

https://eiec.kdi.re.kr/policy/materialView.do?num=205451&topic=P&recommend=

7.

OECD (2020), "Culture shock: COVID-19 and the cultural and creative sectors", OECD Policy Responses to Coronavirus (COVID-19), pp.4-5, OECD Publishing, Paris, https://doi.org/10.1787/08da9e0e-en.

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