Small is the New Big

This is the text of the speech I gave in Seoul, South Korea during Global Entrepreneurship Week:

This week, 87 countries around the world are celebrating global entrepreneurship week. Last week, Germany, Europe, and the world celebrated the 20th anniversary of the fall of the Berlin Wall on 11/9/1989. Perhaps these two celebrations are closely related, more than we might think at first glance.

First, let me thank our hosts, as I am deeply honored for the opportunity to speak to you today thanks to the support of Small and Medium Business Administration of Korea. My talk today has the theme “Small is the New Big.” Let me explain what that means.

Korea is a small country, but its economic growth over the last 50 years has been faster than anyplace on Earth at any time in human history. But the synopsis of how Korea did it in textbooks is this: big Chaebol companies guided by the government was the strategy.

Maybe that is true, maybe not. But one thing is certain. Big firms cannot and will not be able to power such fast growth in the future. All advanced economies face the same challenge: in Korea, in the U.S., in Europe, in Japan. Big is slow. An economy dominated by big firms can do very well in copying ideas, but it cannot innovate and lead without the cutting edge of entrepreneurs.

As you know I have been at times in my life a small businessman. My father was the president of small business as well. You probably do not know that in 1981, my father’s small company was hired by the Korean Air Force to build liquid oxygen tanks. I still remember when he took the big trip across the Pacific and came back with stories of this wonderful and hard-working country. Ten years later, I too travelled to Korea to live and serve in the military alongside my brothers in the Korean military. The word “ally” is something that I will always associate with this country. And I came here, then as now, more to learn than to lecture. So it is with great humility that I return again for this visit.

As you must know, many people around the world look at the Korean peninsula and see the DMZ that divides the North from the South. They see a choice between two systems, capitalist or socialist, exactly like the concrete wall that split Germany in two. Differences abound, of course, but the cause for these differences is less understood. The GDP of the North is a fraction of the South, and the height difference between the Koreas is five centimeters. So did North Korea slide back or did South Korea shoot ahead?

As for me, I get tired of the comparison between two Koreas because I think it ignores the dynamism of this country in its own right. What outsiders do not see is how vibrant the economy of Seoul is today in comparison with what it was in 1991 when I lived here, or 1981 when my father visited, or 1971, or 1961 … What we know, especially we in this room, is that there is no such thing as an unchanging economy. The capitalism of South Korea is constantly evolving and improving, with new rules and laws that constantly push human progress forward. My time living in Seoul taught me this lesson about how a dynamic economy creates progress, which inspired me to study economics for a PhD and also to start my own companies.

Today, we celebrate entrepreneurship in all corners of the globe. Right now, thousands of partner organizations are conducting more than 25,000 activities—from simple speeches to advanced business competitions and actual launches—designed to inspire, connect, mentor and engage the next generation of entrepreneurs.

Global Entrepreneurship Week enjoys the support of numerous global leaders, such as: Prince Charles; US Secretary of State Hillary Clinton; President Nicolas Sarkozy of France; President Lula in Brazil; King Mohammed VI from Morocco; Prince Abdelaziz Ben Abdullah in Saudi Arabia; Prime Minister Gordon Brown in the UK; and, many others.

The amazing thing is that what we are celebrating – entrepreneurship – was forecast to go extinct. The one and only chart I want to share with you today is this (show chart), which projects the level of entrepreneurship in an economy over the course of its development. On the left side is an economy at its poorest, most agricultural, rural stage. In those economies, everyone is an entrepreneur because there is no large-scale organization. And before 1800, this was the shape of all economies. The emergence of industrialization over the years 1800-1900 saw the rate of entrepreneurship decline as more workers became employees. Firms grew larger. Lifetime employment became an option.

Imagine Karl Marx, and later Joseph Schumpeter, interpreting this trend. All the great economists saw this trend line and predicted its eventual conclusion – that one day the economy would evolve to a stage where all innovation was impossible outside of the large, wealthy corporation. In 1950, as giants like General Electric, AT&T produced mass patents, that fate seemed logical.

And I would say that the Korean development strategy mirrored the “big” logic of large companies. History, however, has not been kind to the theory. At the end of the 20th century, just when small firms should have gone extinct, a handful of small computer companies emerged, one after the other. Innovation was happening outside of the large R&D labs. In garages. This is the story of Silicon Valley, Apple, Sun, Microsoft, Dell, Google, Blizzard. In short, small is the new big. And I believe history will see a rebound in the rate of entrepreneurship. Why? Advanced economies are based much more on services and knowledge, the territory of smaller newer firms, and far less on manufacturing, the terrain of industrial conglomerates. Outsourcing and globalization will only accelerate the advantages of smaller, specialized companies.

This story neglects the fact that economic growth is the exception in human history, not the rule. The role for macroeconomists like me, and my employer, the Kauffman Foundation – the largest private funder of economic research in the United States – is to try to discover the underlying reasons for economic growth. And we talk about this place because the rest of the world now looks to the example of South Korea, unique in the world in making the transition from third world to the top dozen economies of the world.

This growth question can’t be separated from the political or the historical. South Korea has always done well because of its engagement with the world.

Under the eighteen year rule of President Chung-Hee Park, per-capita income increased tenfold, as Korea took its place as a world leader in iron, steel, shipbuilding, chemicals, and consumer electronics by opening itself up to the world. Often, this opening was controversial, such as sending troops to help the U.S. war effort in Vietnam or normalizing relations with Japan or the 1988 Seoul Olympics (done after Park’s assassination), but there’s little doubt about the result.

That commitment to economic growth is seen now with President Lee Myung-bak, whose ambition 747 plan, will require harnessing the genius and entrepreneurial work ethic of the Korean people if it is to be accomplished. Seven percent economic growth, an increase in GDP per capita of $40,000, and Korea making it as the world’s seventh largest economy.

Although the initial growth since the Olympics of 1988, twenty-one years ago was fueled by government spending and subsidies, the new South Korean economy must increasingly depend on entrepreneurs and innovation.

Consider patents filed in the U.S. from other nations. In 1978, Korean inventors obtained 13 U.S. patents. By 1998, that number had grown to 3,362. Korea's total jumped another 2.5 times, to 8,731, last year, vaulting it to third place in patents awarded to foreign countries. Only Japan (36,679) and Germany (10,086) had more.

There are further challenges to overcome. A 2008 survey revealed that 42 percent of South Koreans had never spoken to a foreigner, even as the past seven years saw a doubling of the number of foreign residents, to 1.2 million. And rigid labor laws in South Korea make hiring temps attractive, to the detriment of the South Korean economy. The number of contract workers in South Korea is estimated by the government at 5.4 million, or 33 percent of the country’s wage earners.

But hard work and commitment to progress overcome all challenges. And work hard, Koreans do. The Economist reports that the average South Korean works a 45 hour work week, more than seven hours longer than the next highest country in the OECD. Even more impressive is the cohesion of the Korean social network. According to the National Bureau of Economic Research, 28 percent of Korean-American men and 20 percent of Korean-American women own their own business—the highest rate of entrepreneurship among ethnic groups in the USA.

It’s an embarrassment that my country has waited so long to approve a free trade agreement between our two countries. It’s especially foolish as South Korea and India passed a free trade deal that essentially eliminates trade restrictions between these two countries. Another agreement is now in place between South Korea and the EU. I applaud this step forward with greater economic openness, and promise to continue to fight for America to seal a trade deal.

So, 20 years after the fall of the Berlin Wall, we end here talking about openness and globalization. We should remember what exactly the Wall represents. It is not, as I said, a simple dividing line between two opposing systems. The objective of the Wall is only this: to keep enslaved people from emigrating. That is all. Migration is the most basic human right, and without it, there is no freedom.

With migration – the pinnacle of openness – the world’s cities are suddenly changed into competitive units. Evolutionary progress becomes the norm, which we now know means unleashing entrepreneurs, innovation, and growth.

To summarize, I believe South Korea is a shining example of rapid growth, and I believe your future is brighter than your past or even the amazing economy in the present. And this economy is a vital example to others in a radically more competitive world. The new competition is not just between products and services for export, but it is a competition of national economic policies. New kinds of capitalism are mutating and challenging older forms. Those countries that are the most open to trade, open to immigration, and open to new ideas will win. And I think we can see a glimpse of one of the most important new ideas of all: small is the new big.

Thank you.

Comments

[Charles brooks]

1. Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.

www.onlineuniversalwork.com

[abass]

I believe your future is brighter than your past or even the amazing economy in the present. And this economy is a vital example to others in a radically more competitive world. The new competition is not just between products and services for export, but it is a competition of national economic policies.
small business

[henrylow]

Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.

www.onlineuniversalwork.com