World Bank Reprint Series: Number 386 Won-Yong Kwon Issues and Problenis in 1P"lanning and hnplennenlting Indushial Location Pollcies in Korea: A Plan1 er's 'View Reprinted with the permission of the Korea Research Institute for Human Settlements, Seoul, Republic of Korea, from The Korea Spatial Plzanninig Review, vol. IV (December 1985), pp. 185-226. The Korea Spatial Planning Review Vol IV. Dec.31. 1985.pl85-226 Korea Research Institute For Human Settlement. Issues And Problems In Planning And Implementing Industrial Location Policies In Korea: A Planner's Viewf Won-Yong Kwon* -Table of Contents I. INTRODUCTION II. BACKDROP OF POLICY-MAKING mI. SELECTED ISSUES IN POLICY IMPLEMENTATION IV. PROBLEMS IN RELOCATING INDUSTRIES: SURVEY EVIDENCE V. CONCLUDING REMARKS TA i Coil I %*kF 1- !- 15' Al ,4 Y-t 4 -- , ItB & It -sLt VOL 4e ieffla1- A IA 41, r Ni x4 o1 6,14. A, I + -- -f4 7i] A -sF IX A. A -R p W G X1, t7C t JA W 5tE oi nAi Siw, * h uhr sarsarhdrco inte Korea ReerhJsttt o Huma Setemns Sol Kra 4*O; L ;1,1 -P-+;1 ° i v-T1 0 i $ ,z oi 4 7 g;X P + This pprhsbe rprdas part of at+E World Bank4 research projec oninutralcainoice _Algg4l 4- 33 7.--O NtL 6 7j -0]- r= "' 6+1 @T1 7 4.C 6 ) tDrKuikL, Project Dirc,to for his hlf cmm a estions. Hwev, th au to is sole p Io l fo t vw e atn g ay i e 2) &fff 011A 4-:4A MkIjf,0ol0 % * 2 f1 4t ° T 1l* 'p V:wSsb 1_,t@B t4;q j oVT ,1__ l * The author is a research director in the Korea Research Institute for Human Settlements, Seoul, Korea. +This paper has been prepared as part of a World Bank research project on industrial location policies (RPO 672-91). Thanks go to Dr. Kyu Sik Lee, Project Director, for his helpful comments and sugg- estions. However, the author is solely responsible for the views expressed and any remaining errors. 186 4) 'J';i tfIa (A k206 T1 U_F)bil it 4U-m m L1it i Lk4oM A1 P lo itl --7' , * t T= '2 tj ?I Mi *PI A- 0 J 6 5) t tti °ol ll F-71 *1 t/ A ftt DI-, kol -01 °1 )S3£Ll&il Ai iav;7, AgER A:3S 1 Ii4f.EtS ' I. INTRODUCTION implementation are presented: institutional arrangements and legal provisions for poli- This paper is intended to provide a cy implementation are examined; concerning realistic look at issues and problems associ- policy instruments, the government empha- ated with the industrial location policies in sis on control measures is evaluated; the the Republic of Korea since the early 1960s. difficulties of selecting manufacturing There is a considerable divergence between establishments for relocation are illus- indsutrial location policy objectives and trated; and finally, the lack of coordination their implementation. There are also with respect to such issues as zonal dif- numerous barriers hampering successful ferentiation for land use and the treatment implementation: the lack of institutional of vacated premises is discussed. arrangements for efficient coordination Third, as part of a study conducted by among government bodies, and the failure to Korea Research Institute for Human Set- perceive the real situations faced by indus- tlements (KRIHS, 1984), an ad hoc survey tries. In between, planners tend to encoun- was performed in order to identify critical ter an insoluble dilemma. obstacles which may discourage industries The study will be divided into three parts. from relocating. The survey results are First, the policy objectives to relocate intended to evaluate various policy instru- industries will be examined in close relation ments implemented and their effectiveness. to those of population decentralization. Both qualitative and quantitative aspects Some rationales for decentralizing popula- are covered. In addition, the unexpected tion from Seoul are described in an attempt side-effects of industrial relocation poli- to identify major policy fields and cies are discussed by comparing situations strategies. The remainder of the first part after relocation with those before reloca- deals briefly with two aspects of planning tion. efforts for the Seoul Region: decentraliza- Finally, concluding remarks are made tion from the region (inter-regional) and with some policy implications and recom- deconcentration within the region (intra- mendations. Lessons from past experience regional). should be valuable for future policy work in Second, main issues encountered in policy this area. Implementation of current poli- Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 187 cies is a beginning of future policy-making Plan (1962-66). However, rapid urbaniza- and can provide a relevant guidance to tion itself does not necessarily raise many future planning activities. spatial policy issues. The policy problems in Korea arise from the speed of population U. BACKDROP OF POLICY- concentration in the national capital, Seoul, MAKING leading to a skewed pattern of urbanization. For example, Seoul's share of the national Urban growth, generally speaking, can be population has increased from 7.3 percent in observed in terms of its size, speed, and 1955 to 22.3 percent in 1980. The recent spatial balance. During the last two decades census estimate revealed that the Seoul (1960-80) the size of urban population in population had already reached more than Korea increased by 15.8 million represent- 9.5 million in 1984. ing more than the total national population What were the underlyng forces to such a increase over the same period. This fact phenomenal urbanization process? The gov- implies that urban growth was largely ernment efforts to modernize Korea via accounted for by migration from rural industrialization, of course, played a prim- areas. ary role in a remarkable economic growth As shown in Table 1, the so-called since the early 1960s. Urbanization in urbanization speed was accelerated at a Korea cannot be discussed without con- galloping rate of 4.4 percent per annum sidering the rapid expansion of manufactur- between 1966-70, accompanied by the rapid ing sectors, which absorbed the cheap labor economic growth which was initiated by the of rural immigrants. Historical evidence First Five-Year Economic Development suggests that industrialization cannot be TABLE 1. URBANIZATION SPEED IN TERMS OF ANNUAL POPULATION GROWTrH RATE Urbanization Period Urban Area(A) Whole Country(B) Speed (A-B) 1960-66 5.0 2. 6 2.4 1966-70 6. 3 1.9 4.4 1970-75 5. 2 2. 0 3.2 1975-80 4. 2 1. 9 '2. 3 Source Economic Planning Board, Population and Housing Census, 1960, 1966, 1975, and 1980. 188 divorced from urbanization, although the high density of Korea is taken into account, latter proceeds even without the former. In Koreans believe it appears undesirable to the Korean case, urbanization and indus- accommodate more than one-fifth of her trialization are bighly correlated because whole population within a urban area they go hand-in-hand. Simultaneous urba- equivalent only to 0.63 percent of the total nization and industrialization led to a high national land. level of concentration of population and The second is the real and imagined economic activities in Seoul. Put it another diseconomies of the primate city itself, way, the primate city has functionied as a which affects both the internal efficiency of "development engine" for national economic city management and population absortive growth. Ever since 1964, however, the capacity. Rapid population growth caused alleviation of population concentration in many serious urban problems, such as traf- Seoul has become one of the most con- fic congestion, land speculation, housing troversial policy issues. The national gov- shortage and overcrowding, pollution, and ernment feared the unfavorable consequ- infrastructure backlogs. Coupled with ences of extreme primacy, and a series of municipal financial difficulties, the provi- strong measures have been taken to reduce sion of urban services has continued to be a this primacy. critical problem. Rationale for Population Decen- The third, and sometimes emphasized as the most important, is a growing concern with respect to national defense from a Population decentralization policy may strategical viewpoint. The locaiton of this be justified on three primary grounds. The excessive agglomeration within range of first is regional disparity problem arising North Korean artil>ry is very disadvan- from the uneven distribution of population tageous for military security. In a similar and economic acitivity. The distorted spatial vein, spatial concentration of large groups organization, due to the Seoul's predomi- of the low income people is thought to be nance over the national urban system, has vulnerable to social turbulence. undeniably contributed to inter-regional inequality. Table 2 pictures vividly the Spatial Redistribution of Jobs Seoul's possession of the lion's share of and People everything, which often causes political problems as non-metropolitan dwellers National settlements policy, borrowing speak of the "Seoul Republic." For inst- Richardson's (1981, p. 267) definition, ance, about a quarter of manufacturing attempts to change the inter-urban dis- firms are located in Seoul. Even when the tribution of population, slowing down the Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 189 TABLE 2. CONCENTRATION RATIO IN SEOUL Ratio' Indicators Year ILdicators Year i)% Area size(O.63) 1970 Area size(O.63) 1980 Value added in manufacturing (18.5) 1980 20% Total population(17.6) 1970 Employees in manufacturing (22.1) 1980 Total population(22.3) 1980 Number of manufacturing firms(23.7) 1970 30% National wealtb(26.3) 1968 Number of manufacturing Gross Regional Product(26.5) 1970 firms(24.8) 1980 Employees in manufacturing GroFs Regional Product(29.3) 1980 (28.2) 1970 Revenues(32.1) 1970 Revenues(33.3) 1978 Retail and wholesale volume Mails transaction(33.9) (32.3) 1U71 National tax collection(34.2) 1980 Construction workers(32.3) 1976 National wealth(34.5) 1977 Value added in manufacturing(34.7) 40% Mails transaction(38.1) 1970 Retail and wholesale volume Urban population(42.4) 1970 (36.5) 1979 I Telephone(42.9) 1970 Telephone(37.0) 1980 Urban population(39.0) 1980 50% Employment in finance and Colleges and university insurance(46.6) 1976 students(43.9) 1980 Employment in finance and Automobile(49.9) 1970 insurance(47.7) National tax(50.1) 1970 Consturction workers(56.5) Bank loan(54.4) Automobile(57.9) 1980 70% Bank deposits(63.4) 1970 Bank loan(63.9) 1980 Colleges and university Bank deposits(64.9) 1980 students(66.6) Managerial jobs(77.0) 1975 80% Managerial jobs(81.0) 1979 Note: 'Ratio means Seoul's share, comparing with the national total. Source: Kwon(1983), p. 5. 190 growth of some cities and accelerating the most of other national goals (e.g., economic growth of others. Attention should be paid growth) have ,spatial implications. Failure to all levels of the national urban hierarchy to recognize this can result in serious error from the primate city to the smallest market in policy-making. and service centers. As shown in Figure 1, planners in Korea The spatial goals of natonal settlement who were concerned with spatial equity policy, howuvxer it may be termed as principally wanted to influence the distribu- "national urbaniization policies," or tion of jobs. Population redistribution and "national urban development strategies" migration (hence, the patterns of urbaniza- include: tion) are the result of the creation of new 1) Reducing the primate city's growth; employment opportunities via some mechan- 2) Strengthening the intermediate cities isms for locating industries. In this regard, outside the capital region; and the government policy makers recognized 3) Minimizing rural outmigration. the importance of industrial location, after The goals referred to above do not neces- the successful implementation of the First sarily mean "population redistribution" Five Year Economic Development Plan based solely on migration policy because (1962-66). Aggregated onomic Growth (National Goal) Distrubution of Investment (Sectoral Efficiency) Distribution of Jobs t o(Spatial Equity) FIGURE 1. REDISTRIBUTION MECHANISM OF JOBS AND PEOPLE As indicated earlier,control on the relent- population in Korea, and such a fundamental less growth of the primate city is a balanc- goal seems self-evident to Koreans. The ing leverage for redistributing the national key to policy formulation for population Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 191 decenralization is how to reverse the supply, social, educational, and cultural tendency for people to move into Seoul. facilities), compared with other local cities. When population decentralization is an end, For political reasons, the government can- then, job availabiliy is inevitably the means. not but place emphasis on improving Seoul's Emphasis was placed on transfering people infrastructure; one explanation is the size to dispersed jobs available outside of Seoul. of the influential voices of the power elite Spatial redistribution of government residine 'n the capital city. power was another aspect of the population Table 3 identifies succinctly the three dispersal policy. Under the government- major policy fields and related goals. Given guided economy of the last two decades, it this conceptual framework (Sundquist 1975, would be very advantageous to locate close p. 34), four basic approaches have been to the central administration. Seoul resi- employed in Korea so as to translate these dents are benefited from a relatively high policy goals into appropriate plans and level of public service provision (e.g., water programs to be implemented: TABLE 3. POLICY FIELDS AND IDENTIFICATION OF GOALS Aspects Policy fields Policy goals Economic Industrial Spatial redistribution of economic activi- location ties, i.e., jobs Social/Cultural Housing and Spatial redistribution of people Eduction Political/ Administration Spatial redistribution of government Historical power 1) Infrastructure measures; ment by zoning regulations and - to prepare industrial sites for other mandates in the major metro- manufacturing firms moving out of politan areas. Seoul. 4) Direct action by the government; 2) Incentive measures; - to locate and relocate its own - to provide financial assistance and activities, including the expansion tax exemptions for relocated firms. projects of state-controlled cor- 3) Controls and persuasion; porations. - to discourage fixed capital invest- It is noteworthy that only "infrastructure t92 measures" involve physical investment particular, it carried a number of distinc- whereas the others are related to, by and tive policy objectives focused on population large, non-physical policy measures. These decentralization from the Seoul Region. As strategic approaches also shed much light for planning techniques, it was characte- on evaluating industrial relocation policy rized by the introduction of theconceptof instruments discussed later in Chapter 111. planning region, even though its effective- Plans for Population Decentra- ness remained questionable. In an evaluative attempt, some positive outcomes of its implementation over this The implication of policy-making geared planning period are worth mentioning: to population decentra'ization from Seoul i ) Infrastructure provision for indust- leads to the two levels of planning: (1) rial development, such as large-scale intra-regional deconcentration and (2) in- industrial estates; ter-regional decentralization. The former ii) Expansion of arterial transportation is concerned with a region-wide population networks like the Seoul-Busan ex- dispersal strategy to foster Seoul and its press way; surrounding Gveonggi Province as a iii) Water resource management via con- "polycentric urban region.' The latter is to struction of multi-purpose dams; and stress a nation-wide population accom- iv) Establishment of national land use modation strategy via inter-regional decen- and management system, e.g., de- tralization. From a settlement policy pers- signation of greenbelts and national pective, both aspects of spatial strategies parks. are two sides of the same coin, considering By contrast, several critical policy failures the national migratory flows. Although this of its implementation during the tO's can be paper deals with intra-regional issues, the pointed out as follows: inter-regional aspects are brieflv discussed i ) Bipolar urban development at the below. expense of the intermediate and local cities, i.e., overconcentration of the national popiulation (30.8 percent in Under the legal provision in 1963, the 1980) in two biggest cities, Seoul and first Comprehensive National Physical De- Busan; velopment Plan (1972-81) was prepared by ii) The relative degradation of the quali- th.e Ministry of Construction. Its primary ty of life compared with economic goal was to alleviate the regional disparity growth, i.e., lack of investment on by counteracting the trends of spatially housing, education, medical and other imbalanced national economic growth. In urban services; Issues and Problenms In Planning and Implenmenting In(1Lustrial Location Policies In Korea: A Planner's View/ 193 iii) Increasing land speculation concom- largest three cities, I)aegu, Kwangju, and itant with implementing the Plan, i.e., Daejun were selected to serve as the prim- social cost of "windfalls and wipe- ary centers, while the remainder as the outs." secondary centers. The former are expected To perceive such unresolved planning to follow up the present level of Seoul's problems, the newly prepared Second service function; it means to accommodate National Comprehensive National Physical some portion of dispersed "central manage- DevEiopment Plan (1982-91) is accordingly rial functions" from the Seoul Region. The tailored to promoting "growth centers latter will be stimulated to play a substan- rather than "growth poles." Instead of tive role as employment and service centers, growth pole concepts adopted implicitly by but with a lower priority in the first half of promoting new industrial cities over the the planning period (1982-86). past 15 vears, growth centers are conceived It is notable in Figure 2 that more than more amenable to the logic of establishing half of nominated centerswere located in the local "population dams." The basic idea is four depressed provinces (Kwangwon, consistent with the goal of keeping the rural Chungbuk, Jeonbuk, and Jeonnam), which population as large as possible. virtually showed absolute decline in popula- By growth center policy, we mean "decen- tion during the last ten years (1970-80). tralized concentration strategy" designed to Emphasis on such strategic formation of bring about heavy investment on service growth centers, against the traditional provision as well as economic infrastruc- Seoul-Busan development corridor, is re- ture, utilizing sizable local cities as points garded as the policy objective of the future of attraction for migrants who otherwise balanced spatial development (i.e., "X" pat- would go to the congested large metropoli- tern consist of two axes) in Korea. tan area. I'he choice of cities was based Planning measures for implementing upon four categories of criteria: economic growth center policy, inter alia, should development potential; centrality and include: hinterland relations; contributions to in- (1) Incentives for inducing labor-inten- ter-regional equity; and political accepta- sive manufacturing establishments, bility. e.g., expansion of local industrial Among 15 designated cities, population estates and tax exemption facilities; size varied from 50,000 to more than one (2) Priorities on site provision for relo- million. One constraint that does not limit cated universities and research orga- them to the intermediate size is that each nizations from Seoul; province insisted on having at least two (3) Improving transportation networks growth centers within its boundary. The among growth centers, and between 194 Depressed Provi ces "A ) Chuncheon ! itRs OUL S6 LI t ,( Kangreu-ng a Cheonawi hen3i,.1~j ) 2 iAlindoiig DAEJUN J Ahdl Jea u DAEGU r, Jeonju / Jinju 2qC t 31<|M A MG J,U\ a okpo BUSAN PRII ARY INDUCED SECONDARY INDUCED ' GROWJTH CENITERS GROWTH CENTERS 0 K 20 30 9,tKM Source: The Second Comprehensive National Physical Development Plan(1982-91) FIGURE 2. DESIGNATION OF INDUCED GROWTH CENTERS Issues and Problems In Planning and Implementing Ind ustrialI Location Policies In Korea: A Planner's View/ 195 each growth center and its hinterland; influence on at least public institutions, (4) Considerable delegation of adminis- universities, and corporation headquarters trative power to localities; and in Seoul. Several candidate locations were (5) Enactment of "Growth Center Prom- chosen in secret, and what we call "paper otion Law" to finance its implementa- plans" designing a new town sized 0.5 tion. million were made over a period of three Aside from the Second National Compre- years. hensive Physical Plan, the tentative reloca- The new capital city plan was not im.- tion of the capitall was announced by the plernented as yet, regardless of its legal president in 1977. It appeared to be a final provision and intensive background studies. "one-shot" policy measure of the govern- The economnic risks are apparently envis- ment which might reduce drastically the aged with the needs of the enormous primacy of Seoul. Relocation of the central amounts of investment, not to mention the government administration can make strong political repercussions. However, under a TABLE 4. DISTRIBUTION OF MANUFACTURING EMPLOYMENJT AND POIPULA- TION BETWEEN SEOUL AND GYEONGGI PROVINCE, 1973-83 1:3 1978 1983 ___ Manufacturinig emnployment Seoul 70. 6 52i<2 45. 7 Gyeonggi 29.4 47.7 54. 3 Total __ 100. 0 100. A __ 100. 0 (Number) 580, 844 1,031,328 1,019, 413 Population Seoul 63.2" 63.7 62.3' Gyeonggi 36. 8 :36. 3 37. 7 Total 100.( 1 00.0 _ 1,00.0 (Number) _9, 959, 396i 12, 274, 866 14, 782, 854 __ Note Manufacturing establishiments with 5 or more. Source: E. P. B., Mining anrd Mlanufactuiring Ce~nsus, 1983. Seoul & Gveonggi, Statistical Yearboo'ks, 1984. 196 highly centralized government system as in its various metropolitan problems; i.e., in- Korea its impact on the distribution of dustrial relocation, increased commuting population would be tremendous. distance, environmental degradation, and Intra-regionol Level rising demand for recreation. The Plan called for guiding orderly settlements of Very recently, a Growth Control and population and economic activities both Management Plan for the Seoul Region within and away from the region. (1982-91) was prepared by the Ministry of The most important aspect of the Plan is Construction. There are two problems to be to reorganize the spatial structure on the taken into consideration. First of all, the basis of a multi-nuclei design concept. The region has begun to show a dispersive overall planning strategies are formulated tendency since the late 1970s at the intra- focusing on region-wide land use control. regional scale. The city of Seoul has experi- The greenbelt surrounding Seoul, for ex- enced decreasing shares of manufacturing ample, will be maintained in effect during jobs and population in the Seoul Region, the planning period, despite the rapidly while the neighboring satellite cities in the increasing demand for housing land. In the Gyeonggi Province have gained a great deal light of intra-regional decentralization, the of employment and population. The spillover Seoul Region is subdivided into five subre- phenomenon was partly influenced by the gions, which reflect different growth man- government's dispersal policy and the im- agement strategies for subregions (see Fi- proved commuting railroad networks by gure 3 and Table 6). The basic strategy is electrification linked directly with the that the Special Development and the En- Seoul subway system after 1974. More vironmental Protection Subregions are to importantly, planners have encountered be reserved as open space for the future use changing sources in the population growth. and the southwestern part of the Seoul Table 5 confirms that the capital city's Region will be extensively developed to expansion w*il increasingly rely on natural absorb the population and industries dis- population growth rather than on inmigra- persed from the Restricted and the Control- tion in the future. led Development Subregions. The total It is apparent that the Seoul Region size of the Seoul Region is 11,676 knf, and reached the level of "relative decentraliza- 13.4 percent of it was established as green tion" (Vanhove and Klaassen, 1980, pp. belts in 1972, for checking the further 187-188) in the sense that the population sprawl of the built-up areas in Seoul and increases in the outlying areas much faster preventing neighborinrg cities from merging than the central city. At this stage of urban into another. development, Seoul alone cannot deal with In sum, the following policy objectives Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: APlanner's View/ 197 TABLE 5. CONTRIBUTION OF NET-MIGRATION TO SEOUL'S POPULATION GROWTH Total population Net Share Periods increase(A) migrants(B) (B/A) (1,000's) (1,000's) 1960-66 1, 2 0 3 7 8 4 6 5 % 1966-70 1 7 3 3 1, 4 2 2 8 2 % 1970-75 1 ,3 2 6 6 3 1 4 8% 1975-80 1, 6 2 8 6 8 4 4 2 % Source: Kwon(1981b), p. 80. and broad guidelines are established for the 5) To develop a small-scale industrial implementation of the Growth Control and complex in the Ahsan Baay Area south- Management Plan for the Seoul Region west of the Seoul Region including the (Kwon, 1981a, pp. 328-329). new industrial city of Banwol, so as to 1) To relieve Seoul's primacy without accommodate small and medium manu- hampering national and regional facturing firms dispersed from Seoul; prosperity, by decentralizing selec- 6) To establish growth centers, such as tively he nonessential functions such university campus towns in the south- as research complex and some govern- eastern part of the Seoul Region, ment agencies located in Seoul; avoiding pollution problems and con- 2) To preserve the area north of the Han version of agricultural land; River as it is now for national security 7) To promote office parks and commodi- reasons, and to develop extensively ty distribution centers in the outlying the southern half by letting it absorb areas of Seoul, reducing people and the population from Seoul; freight movement into Seoul; and 3) To deconcentrate international trade 8) To construct a second international and central managerial functions in airport and an express way along the Seoul, reinforcing linkages with satel- west coast, supporting a regionwide lite cities; transportation svstem and dispersal of 4) To protect the upper Han River basin people and industry. from pollution in order to maintain These guidelines seem acceptable as far water quality and promote recreation- as physical planning is concerned. But the al and outdoor activities; planner faces two main stumbling blocks. 198 1 4 ,¢ / ~SPECIAL L 0 to 2Q 30 4ACht / DEVELOPMENT Dongducheon f f"..* ....'( r - RESTRICTED ' ,q- DEVELOPMENT , SUBREGION \ - - "The Han River Buche\ \ Inch 0 .Angnam ENVIRONMhENTAL Kwachon ) PROTECTION CONTROLLED SUBREGION Anyang DEVELOPMENT B -SUBREGION Suwon Icheon ENCOURAGED , - Ahsan DEVELOPMENT 7 S ' . Bay SUBREGION S n ' { n. Anjung 1 - Pyongtak/' FIGURE 3. THE SEOUL REGION AND 11TS STRATEGIC DIVISION BY FIVE SUB-REGIONS TABLE 6. GROWTH MANAGEMENT STRATEGIES AND PROGRAMS FOR SUBREGIONS IN THE SEOUL REGION , Major Cities Growth Management Strategies Subregion Location ( and Towns and programs 3 I. Restricted Seoul, Euijongbu Core areas and inner ring Dispersal, decongestion, and decentralization Develop- Kuri, Wondang with radius of 15km, lo- 1. denial of new factory construction ment cated North and South of 2. relocation of pollution-causing manufac- z Subregion the Han River turing establishments 3. dispersion of population and prevention of 3 immigrants 3 4. selective dispersal of education facilities Il. Controlled Incheon, Suwon, Suburban areas South of Population growth control, and avoidance of D ev e l op- Ahnyang, Banwol Seoul ring with radius of urban sprawl ment 35 km, Suwon as the Sub- 1. limitations on new factory construction Subregion region's center 2. accommodation of portions of displaced 0 industries from Seoul 0 3. suspension of disorderly land use practices 5 4. manageable density development with 5 green belt 2 CD IU. Encouraged Pyeongtak, Southern part of the outer Intensive and extensive development Development Anjung, Ansung ring with radius of 70 km, 1. new town development such as a campus C Subregion New growth potentials for town < peripheral development 2. expansion of existing cities and towns and growth centers Table 6. (Continued) CD 3. development of industrial estate in Ah- san Bay 4. minimization of pollution problem and of loss of agricultural land 5. inland light and clean industries IV. Environ- Gapyeong, The fringe areas of the out- Preservation, conservation, and protection mental Yangpyeong, er ring located on the 1. prevention of upper Han River basin from Protection Yeoju basin of upstream Han pollutiun to maintain water quality Subregion River 2. water resources development 3. natural resources preservation and promo- tion of recreational and outdoor activities 4. promotion of dairy and vegatable farming including industrial- crop V. Special Gangwha, Munsan, The fringe areas of the Reserved for future development D e v e l o p- Dongducheon, outer ring located North of 1. buffer for national defense ment Pocheon Seoul and South of DMZ 2. limited development of agroindustries Subregion (Demilitarized Zone) 3. conservation of forestry and other natural resources 4. promotion of truck farming and livestock farming Source: Korea Research Institute for Human Settlements(1981) Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 201 First, how can the Plan objectives be this Chapter is to delineate and describe the reconciled with those of the National Eco- strategy for relocating industries, to ex- nomic Development Plan? The focus of plore briefly the institutional arrangements national policies is primarily nonspatial in that should enable the government to imple- nature, but nevertheless, they have impacts ment various programs, and to discuss upon the spatial distribution of people and issues in selecting policy instruments as economic activities. The Seoul Region can well as target groups for policy implementa- be easily affected by macro economic poli- tion. cies, because of its dominance over the Institutional Arrangements and national economy. Second, how can more . . effective administrative coordination be achieved among local governments? To man- The first major step in implementing the age regionwide problems of such magni- relocation policy is to create an administra- tudes, special efforts should be made to tive agency or agencies to be responsible for create an appropriate form of regional the various legal provisions. Figure 4 de- organization. scribes the institutional framework within which the policy instruments have been HI. SELECTED ISSUES IN implemented in Korea. As discussed below, this is a dual system in the light of POLICY IMPLEMENTATION institutional arrangements and legal provi- sions for industrial relocation in Korea. The population dispersal plans described Both the Ministry of Construction (MOC) in the previous Chapter heavily focus on and the Ministry of Trade and Industry industrial location. As Renaud (1979, pp. (MOTI), under their own jurisdictions, used 82-84) indicated, there are three reasons to have the Bureaus in charge of industrial for singling out industrial movement as a location as well as industrial estate develop- major tool in implementing the population ment. During last few years the government decentralization policy: amenability to loca- abolished such Bureaus and lowered such tion control, greater mobility relative to functions to the Div;sion level. service sector, and substantial multiplier The Local Industrial Development Law impact on local economy. (LIDL) was initially designed to disperse For implementing the industrial reloca- population from Seoul to local cities and to tion policy, in response to the population curb the rapid concentration of manufactur- decentralization goals as described in ing industries in the Seoul Region. The Chapter II, appropriate programs need to LIDL was put into operation by the MOC as be identified and prepared. The purpose of a legal basis for government's assistance 202 program for local industries: site provision; 1973 to provide the similar benefits to firms development of such basic infrastruture as and branch factories relocated from access roads, water and energy supply; tax the Seoul Region. In the same year, the MOC exemptions and subsidies to newly housed enacted the Industrial Estate and Water industries. Along with these infrastructure Resource Development Law (IEWRDL) to and incentive measures, a "standard land support the location of large-scale heavy price" system was adopted as a policy tool industries and new in6astrial estates in- for purchasing land for industrial site tended to support the growth pole develop- development. The LIDL was amended in ment strategy. _ _ _ _ _ _ _ _ _- r- I IEWRDL (1973) LIDL (1970) I D L (1977)- _ _ Dispersal Zone Industrial Estate and iLocal I n d u s t r i a I Water Resource Promotion Area(Loc- i S Quo ---1 j ' I Status Quo Zon e Development Area al Industrial Estates) Special Manage-ij Kment Zone ca National Land Use City Planning Act ment --n- Management Law X , Industrial Locationq ,- j Review Committee Industrial Area Zoning Ordinance I FIGURE 4. LEGAL PROVISIONS RELATED TO INDUSTRIAL RELOCATION POLICY IMPLEMENTATION On the other hand, the Industrial Dis- dustrial location. There are at least three tribution Law (IDL) of MOTI directed its salient features compared with the LIDL of attention toward more comprehensive MIOC: approach, preparing a master plan for in- (1) Specification of industrial location/ 1) It is a method of land price freeze for public use by the government, to regulate land speculation as well as price hike. Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 203 relocation by sector (e.g., urban type the compulsory relocation of manufacturing vs. non-urban type); industries. Its ordinances stipulate in detail (2) Establishing sectoral criteria for the degree of spatial discrimination regard- optimal size of industrial sites in- ing industrial location, and specific admi- tended for land use efficiency and nistrative measure to be enforced. As indi- preventing land speculation; and cated in Table 7, for instance, two non- (3) Introduction of zonal diffeirentiation inducement zone, (1) and (2), would be under as a policy tool (e.g., dispersal zone, strict restriction on new establishment inducement zone, special management and/or expansion of industries. However, zone). relocation is permitted for those occurring With the advent of the IDL (1977), the within the same zone (see Figure 5). government was in fact empowered to order TABLE 7. ZONAL DIFFERENTIATION FOR INDUSTRIAL LOCATION CONTROL Designated Z,ones S y Area* (1) Dispersal Zone Relocation Seoul, and its northern pro- Encouragement ximitv (2) Status Quo Zone Expansion Busan, and its vicinity; Discouragement Seoul's satellite cities (3) Inducement Zone Location The rest of the country Encouragement Note: 'Refer to Figure 6 in detail. As for control measure in the Dispersal industries such as printing and some food Zone, the amount of land for industrial use producing items of daily consumption. in Seoul has been reduced drastically from Another important issue in policy imple- 66.3kmr to 30.9krij by rezoning since the early mentation is how to regulate the industrial 1970s. The IDL prohibits any kind of new movement between the Dispersal Zone and establishment and expansion of manufactur- the Status Quo Zone. Figure 5 shows the ing industries in the Dispersal Zone. But relocation pattern allowed by the IDL. Two exceptions are made for urban service-type factors are distinctively taken into consid- 204 eration; one is the land use control by city development. Thus, it would have made more planning law, and the other is the type of sense to place the IDL under the MOC industries classified by the extent of rather than the MOTI so far as the goals of "urban-orientation". population dispersal were concerned. The duality existing within the Uncoordinated efforts by the two minis- government's legal and institutional tries often resulted in confusion and dis- framework, however, cannot escape dis- trust among people and industrialists who cords between MOC and MOTI in im- have vested interests in the dispersal zone plementing the relocating policy. Sometimes or recepton area. For example, there is an they developed conflicting situations in inconsistency in zoning even though the achieving the population decentralization relocation strategy is undeniably identical: objectives. The MOCI is more concerned The Status Quo Zone of the IDL does not with a balanced spatial development, where- coincide with the Controlled Development as the MOTI has more interest in industrial Subregion of the Growth Management Plan growth by promoting export-oriented for the Seoul Region (1982-91). Comparing manufacturing for the national economic Figure 3 with Figure 6, considerable differ- DISPERSAL ZONE STATUS QUO ZONE I - - Industrial, 1G) AreaA 9,- - l= > Green Belt \/ Note:kl.; Only for urban-type industries .3 iFor any kind of industries '4 Expansion possible, if the same kind of operation. O: Only for a limited number of urban-type industries(revised later). FIGURE 5. RELOCATION PATTERN ALLOWED BY INDUSTRIAL DISTRIBUTION LAW Issues and Problems In Planning and Implementing InJustrial Location Policies In Korea: A Planner's View / 205 ences can be seen in zoning nd such incon- A wide range of policy instruments are sistencies would hinder effective imple- available for implementing industrial re- mentation of policy measures. location policies. Borrowing Townroe's (1979, pp. 107-108) classification, these Choice of Policy Instruments instruments are divided into two groups: 0 i0 20 30 4oKM 4Inchon) :.s.t~%:: (9.6 Km2) STATUS QUO ZONE -. ---f Confli c t ing -' , Area FIGURE 6. INCONSISTENCY IN ZONING FOR INDUSTRIAL RELOCATION BE- TWEEN MOTI AND MOC(Compare with Figure 3) 206 TABLE 8. CHOICE OF POLICY INSTRUMENTS IN KOREA Fiscal Instruments Non-Fiscal Instruments * Tax exemption and reduction * Provision of basic infrastructure - Corporate tax - Access roads - Transfer tax l Water supply & sewerage - Property tax - Electric power - Registration tax - Communications, etc - Acquisition tax * Preferential sale of land - Capital gain tax i* ssuance of relocation order * Building and machinary subsidy Restriction of on-site expansion * Accelerated depreciate rate Strong administrative support * Providing Loans for moving costs - Land price freeze W With-holding loan endorsements bv the * Strict enforcement of anti-pollution government law fiscal instruments and non-fiscal instru- employed until the late 1970s. Grants were ments. As shown in Table 8, the former rarely paid for removal expenses, training group includes tax exemption and reduction, expenditure, and relocation costs. subsidies to the cost of establishing a new In order to influence locational choice, plant, and loans for moving costs. On the the government provides a mixture of incen- other hand, a variety of negative measures tives and disincentives aimed at promoting and mandates such as construction licences movement from the Dispersal Zone. Tax and occupancy permits fall into the latter exemptions up to five years is one of the group. most widely implemented incentives for By and large, the industrial relocation industrial relocation. But the 5-year tax policy implemented in Korea has focused exemption period may be to short to recover more upon non-fiscal instruments. In par- the firm's initial investment for relocation; ticular, the provision of industrial estates, it may be desirable to grant a longer accompanied by preferential sale of land, exemption period as long as 10 years. As an has been a policy tool sought by fhe govern- alternative, in some countries, the period of ment since the early 1960s. Among non- exemption begins not in the first year of fiscal instruments, control measures such operation but in the first year that profits as the issuance of relocation orders and the are earned (Galenson, 1984, p. 9). However, restriction of on-site expansion were not since the property tax is a main source of Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 207 local finance in Korea there is a growing Seoul to Banwol, about 60 percent and opposition against such tax exemption from 80 percent of them received some kind local government. of loans for operating cost and equip- According to a recent KRIHS survey ment investment. The amount of loan, on (1984), the increase in operating cost af- the average, was equivalent to 20 to 50 ter relocation was 20-30 percent (see percent of the total financial need. As Table 9). However, most of the relocated suggested in Table 10, it is not surpris- firms in the Banwol industrial estate be- ing that financial support remains the nefited from tax concessions: 25 percent prime instrument to influence the moving of them from acquisition tax, 23 percent decision of relocation-ordered firms in from registration tax, and 19 percent Seoul. In reality, the relocation-ordered from property tax, respectively. About firms surveyed in Seoul asked for loans two-thirds of them responded that the covering more than half of the expenses current tax incentives appeared to be of for moving, expansion, and modernization considerable help. By contrast, 86 per- of production line. cent of the firms in Seoul ordered to re- Apart from loans and subsidies, indus- locate complained that it would not be trialists tend to try to secure more land enough to compensate for the additional than they actully needed because sites expenses arising from relocation. were usually provided at subsidized There is an apparent gap between prices. For this reason, the Industrial their needs and the government's finan- Distribution Law (IDL) prohibits the cial support. Among relocated firms from ownership of extra land according to a TABLE 9. ESTIMATES OF ADDITIONAL OPERATION COST DUE TO RELOCATION Responses Number of firms Percentage No difference ; 1. 3 10% increase 5 3. 3 20% increase 53 35. 3 30% increase 56 37. 3 Other 4 2.7 Total 1'20 100.0 Source:Korea Research Institute for Human Settlements(1984) 208 TABLE 10. THE RELOCATION-ORDERED FIRMS' PREFERENCE TO GOVERN- MENT'S INCENTIVES Rank Government Incentives Weight* 1 Bank loans at a low rate of interest 24. 4 2 Provision of industrial sites at low price 23. 7 3 Financial assistance on industrial equipment & buildings 16.9 4 Financial assistance on interest payment 11. 4 5 Assistance with skilled manpower recruitment 7. 0 6 Subsidies on employee's welfare facilities 6. 6 7 Wage subsidies on job creation 5.3 8 Establishment of information center 3.0 9 Financial assistance on the cost of training/retraining 0. 9 Note: 'The weight is based on the percentage of firms responded in the survey conducted by KRIHS(1984). lot size criterion stipulated as well as ment in housing, schools, and hospitals, standards laid down for each industry. along with industrial site development. Along with providing adequate infras- Selection of Firms for Re- tructure with industrial sites, other potential instrurnents could be consi- location dered, for example, a decentralized pub- In the process of implementing reloca- lic investment in state owned industries, tion policy, selecting industrial firms for government offices, and research institu- decentralization was a challenging task tions. Also, the provision of amenities (Kwon, 1981b, p.88). The key issue was for relocated employees is important. A to set the criteria by which certain in- high priority should be given to invest- dustries will be subject to relocoation Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View / 209 orders (Choe and Song, 1982, p. 95). As a according to the degree of linkages result of extensive debates, the following to the final consumption by house- three criteria were chosen for selecting. holds. the types of industry to be relocated: Both the first and the second criterion (1) Land use conformity with respect are discernible without difficulty, com- to zoning ordinances by city plan- pared to the third one. Particularly, the ning laws; degree of pollution has become an urgent (2) Degree of pollution hazardous to factor that influences the relocation living environment stipulated by priority. Defining so called "urban type the Environmental Conservation industries", however, is extremely diffi- Act; and cult. It goes wvithout saying that indus- (3) Urban-type industry classified trialists have a deep interest in this 12, 533 firms under the 1978 MOTI survey F Conforming land use Non-Conforming land use 4,157 firms 8, 376 firms *(17.6 km2) .(2)4.0 k;m)i rban Type Non-Urban Non-Urba Urban Type 11, 370 Type Type | 4, 4s78 firms J 2,787 /3:, 898 /\ fir-msJ STAY RELOCATE RELOCATE SUSPEND (2nd Phase) (1st Phase) -- R E L ( C A T I O N P R I O R I T Y Note: Thc figures in the parenthese are the sum of individual lots. Source: Adapted after KID(1980), p. 154. FIGURE 7. CLASSIFICATION SCHEME OF FIRMS TO BE RELOCATED FROM THE DISPERSAL ZONE 210 criterion because an urban type industry ary plants" that can be permitted by zon- can be excluded from the list of firms ing ordinance (see Table 11). The pur- scheduled for industrial relocation. Due pose of adopting this system for zoning to the relocation-order priority as de- ordinance, however, was quite different monstrated in Figure 7, the designation from the aims of industrial relocation. of urban type industries guarantees the The zoning ordinance regulates permis- avoidance of immediate relocation from sion and prohibition of plant-like build- the Dispersal Zone. ings in order to protect residential dis- The IDL initially designated 14 types tricts. The poor conceptualization of of indus . ies as urban type which would urban type industries stipulated by IDL make the majority of firms as potential (1977) assumed the system to fail from movers. The 14 types of industries be- the very beginning. In other words, there long to the same category of "residenti- were too many firms to be relocated. TABLE 11. RESIDENTIARY PLANT LOCATION CONTROL BY ZONING ORDI- NANCE Exclusively Commercial Green ! ~Residentla R Residential Area Area I Area (R1) A R _ 1. Grain-milling X X 0 0 2. Bean curd } X 0 X 3. Printing and publishing X i 0 0 x 4. Cement products X 0 0 X 5. Rice wine manufacture X 0 0 x 6. Ready-made concrete J X 0 0 X Note: 0 ¬es permission and X does prohibition. In 1978, MOTI undertook a plant reg- persal Zone. After one year of IDL en- istration survey for all manufacturing forcement, MOTI made a careful inves- establishments in the country. The sur- tigation to broaden the urban type cate- vey captured 36,264 industrial establish- gories based on the 385 five-digit manu- ments of which one-third (12,533 firms facturing industries. A background study as in Figure 7) were located in the Dis- (KID, 1980, p. 117) suggested that the Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View / 21 1 selection criteria for urban-type indus- tries increased from 14 to 146 as shown tries should be as follows: in Table 12. Industrialists still put much i ) Those products that are daily con- pressure on the government to redefine sumed by urban households (e.g., urban type industries so that it could in- foods and beverages); clude more industries. ii) Manufactured items that are close- Such arbitrary measures as expanding ly linked with the service industry the list of urban type industries would (e.g., beauty aids, sporting goods undermine the basic objective of popula- and office supplies); tion dispersal from Seoul. More detailed iii) High technology industry (e.g., analysis and better criteria were deemed electronic apparatus, medical in- necessary to make distinction between struments); two types of industries. iv) Workshop-like small scale manu- The size of firms should be taken into facturing (e.g., knitting, toys, and account in implementing the relocation mounted arts); policy. A thorny problem was involved in v ) Fashion and communication- selecting the lowei limit of target oriented industry (e.g., women's groups. According to the IDL, manufac- apparel, furniture, jewellery, and turing firms employing more than five printing & publishing). workers were subject to the By several revisions of the enforce- government's relocation order. The smal- ment ordinance of IDL in 1979 and lest group (say, with employees less than 1981, the categories of urban type indus- 9) constitutes more than 45 percent of TABLE 12. INCREASING TRENDS OF EXPANDING THE CATEGORIES OF URBAN-TYPE INDUSTRIES(Number of five-digit industries' 1977 1979 1981 * Food, drinks and tabacco 5 5 20 * Textile, clothing and leather 2 13 28 * Woodworks and furniture 72 14 * Paper, printing and publishing 1 8 18 * Chemicals and allied industries 2 1 1 * Non-metalic goods 2 2 3 * Machinery and equipment 43 * Other manufacturing 19 Total 14 3(3 146 212 TABLE 13. AN EXAMPLE OF CONVERTED USES OF VACANT PREMISES IN SOUL unit: m2 Housing School Ware- Commercial Office Manu Total -- --- houses facilities facturing Area 62,612 10, 777 5, 808 6,605 4, 628 4,397 94, 827 (firms) (13) (1) (6) (3) (1) (3) (27) % of land 66.0 11.4 6.1 7.0 4.9 4.6 100.0 use NQte: Numbers in parentheses denote relocated manufacturing establishments from Seoul to Banwol. Source : IEWRDC(1983), p. 11. the total number of firms to be relo- portant aspect of urban development cated. Such establishments are not able from the city planner's viewpoint. The to move and if the government's reloca- objective of the planner should be to ba- tion orders were issued, they would dis- lance the purely economic considerations appear or manage to go underground. It with the need to preserve and improve seems desirable to exclude this group the quality of the environment and the from the list of relocation ord- living conditions (Smith, 1971, p.487). In ers. An empirical test by Lee (1982) su- this respect, one of the controversial pports the "incubator hypothesis" that policy issues is how to utilize the va- small firms start business in central cated premises after firm's relocation. locations and move to the periphery as The government (MOC) also strongly they grow larger and need more space urged the conversion of vacated premises for expansion (Hoover and Vernon, 19 into parks, public open space, or low- 59). density housing land. The city govern- ment Of Seoul, however, suffering from a chronic financial burden cannot afford to The elimination of non-conforming land purchase those premises. Instead, large uses and pollution-causing manufacturing business firms bought most of them to firms by the relocation policy is an im- be used as sites for their office build- Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 213 ings. Ironically, those office buildings on mises into other adequate land uses. vacated premises would attract more Some premises may not be suitable to daytime population and aggravate traffic public use due to their locational dis- congestion. A close coordination is advantages. Their size or conditions vary urgently needed between the MOC and from stie to site. But it does seem the city government of Seoul in the necessary to establish some operational proper utilization of vacated premises. criteria for possible uses in harmony Due to the city's financial problem, va- with existing zoning ordinances (see cated industrial premises and school Table 14). yards in the CBD are unlikely to be Another complicated problem stems changed into parking lots or public parks from the pattern of land ownership. for the population. As shown in Table When rented factory premises are va- 13, the 1983 survey of IEWRDC indi- cated after relocation, it is natural that cated that two-thirds of vacated premises the land owner would desire to use the after industrial relocation were occupied sites more profitable; thus leading to by residential area. Surprisingly enough, more intensive land use after relocation. some portion of them were used again Renters are mostly small firms and re- for other manufacturing. luctant to relocate unless there is con- Despite strong criticism by the plan- siderable financial assistance for moving. ners, it is not easy to set a guiding prin- They may have to close down without ciple for the conversion of vacatnd pre- having vacated premises to sell. TABLE 14. RECOMMENDED GUIDELINES FOR POSSIBLE USES OF VACATED LAND Land use by zoning ordinance Possible uses * Industrial area * location of urban-type industry * Residential area * road, parking lot, small parks & open ahd space, hospital, school, post office, bank, Commercial area etc. * Green area * no buildings, green space, recreation and sporting facilities 214 Provision of industrial estates in areas As of May 1984, there were at least outside Seoul does not meet the needs of 2,738 manufacturing establishments those small industries without the kinds ordered by the government to relocate of externalities that they can find in cen- from Seoul. The assessment in this sec- tral locations in Seoul. One feasible tion is based upon interviews with 195 solution is to provide "collective sites" randomly sampled firms in Seoul with an in order to accommodate small firms of average of 70 employees. About 70 per- the same kind. As for some urban-type cent of them represent the category of industry (e.g. garmernts), it may be possi- clothing, chemical, and machinery manu- ble to build multi-story factories in a facturing industries. The purpose of the vacated land. Land price is extremely survey was to investigate what problems high in the CBD and demolition of ex- might be involved in implementing an in- isting buildings tends to be costly; they dustrial dispersal program, and which could be renovated and converted into obstacles were hampering firms' reloca- space for small firms or laboratories for tion decisions. research and development. Of the 195 sample firms, 77 percent were subject to relocation orders due to PI. PROBLEMS IN RELOCA- non-conforming land use or pollution TING INDUSTRIES: problems. The remainder belonged to the SURVEY EVIDENCE non-urban type industry category as stipulated by the IDL. On receipts of Two surveys were undertaken in Au- the government relocation orders, the gust 1984 by the Korea Research Insti- surveyed firms showed mixed reactions tute for Human Settlements (hereafter, to moving out of Seoul. One third of 157 KRIHS) to identify problems faced by responded firms, as presented in Table firms relocating from the Dispersal 15, had a plan to move for own business Zone. One survey dealt with the indi- reasons. Half of them felt that the gov- vidual firms under the government re- ernment should compensate enough for location order to assess their reactions. the possible loss stemming from their As will be described later, the other relocation. survey focused on those firms already According to the enactment of IDL, a moved from the Dispersal Zone to com- maximum two-year probation period was pare their situations before relocation given for the firms to be relocated from with those after relocation. the Dispersal Zone. After the probation Obstacles to Relocation Deci- period, the firms should pay five times more of local taxes than usual. Moreov- Issues and Problems 'n Planning and Implementing Ind ustrial Location Policies In Korea: A Planner's View/ 215 TABLE 15. FIRMS' RESPONSES TO THE GOVERNMENT RELOCATION ORDERS Responses Number of firms Percentage * Plan to move for 52 33.1 business reasons * Cannot move unless 79 50.3 government financial support available v Close down 13 8.3 * Stay by converting 7 4.5 into other industry * Others 6 3. 8 Total 157_ 100.0 Source: KRIHS(1984) TABLE 16. REASONS FOR DELAYING RELOCATION Reasons Number of firms responded (%) 1. New site undecided 44 (28.9) 2. Lack of funds for site purchase 43 (28.3) 3. Lack of funds for plant expansion 33 (21. 7) 4. Linkage with clients and marketing 11 ( 7. 2) 5. Employee recruitment 8 (5.3) 6. Factory premises and machinery unsold 6 ( 3.9) Total 145 (100.0) Source: KRIIIS(1984) 216 er, the government is empowered to dis- percent of total demand for their pro- connect utility services such as power, ducts. The transport cost does not telephone, and water supply. Some of the appear to be a crucial factor to the sample firms continued to stay in Seoul firms however, so far as they are located despite heavy pressure imposed upon in the region. them. The most important underlying There exist enormous locational advan- reason for the delay in relocation was tages in the primate city, Seoul, which financial problems. Table 16 shows that tend to be major obstacles to firms' de- the lack of funds for site purchase and cision to move. The survey results in for plant expansion jointly accounted for Table 17 provide some insight into this 50 percent of cases. Out of 145 estab- issue. lishments responded, 44 firms had still From an entrepreneur's standpoint, the failed to find new sites for relocation. reasons ranked from 1 to 4 in Table 17 Most of surveyed firms mentioned that are associated with "economies of site provision and excellent infrastruc- agglomeration", occupying more than 70 ture such as water supply, sewerage, and percent of the total. The other reasons communication facilities were important. ranked from 5 to 7 are related, to some Their locational choices evidently influ- extent, the government relocation policy enced by the advantages derived from the instruments. Taking the future "develop- government's provision of industrial ment prospects" together, those reasons estates. accounted for 26 percent. The reasons of The disposal of factory premises was the future development prospects is in- a negligible barrier to firm's relocation. cluded in this category, for many govern- Land is scarce in Seoul, and there would ment development plans tend to result in be little difficulty to find potential pur- unintended side effects--e.g., land price chasers. Of course, disposal is not a hikes. It is undeniable that some indus- problem for renters. trialists speculated on land by exploiting Almost all of surveyed firms with re- the government relocation programs; thus, location orders have very strong linkages bought larger industrial sites than to local suppliers and services. For inst- needed. ance, thtey purchase more than 85 per- The findings above suggest that the cent of raw materials from the Seoul effectiveness of government policy in- Region(in particular, from the city of struments to relocate manufacturing Seoul). Also the importance of market- firms out of Seoul must inescapably be ing problem cannot be overlooked. The limited by the advantages owing to Seoul Region generates more than 80 agglomeration economies prevailing in Issues and Problems In Planning and Implementing In dustrial Location Policies in Korea: APlanner's View/ 217 TABLE 17. REASONS FOR LOCATING NEAR SEOUL Rank Reason Percentage 1. Market access 26. 0 2. Raw material supply 21.2 3. Labor availablity 15. 2 72. 8' (unskilled) 4. Localization economies 10. 4 5. Site provision 8.5 6. Tax & credit benefit 7. 7 7. Adequate infrastructure 5.4 26. 0 (water supply, etc.) 8. Development prospects 4. 4 9. Miscellaneous 1. 2 Source: KRIHS(1984) Seoul. It implies that the government The housing problem is coupled with should financially compensate for the children's education. When high-rank- agglomeration benefits that firms have to ing employees move from Seoul, they sacrifice when relocate somewhere out- tend to live in lodgings in new locations, side Seoul, which could be prohibitively while their family members remain in costly. Seoul. Children's education seems to be The barriers to industrial relocation a principal reason for keeping two from the employee's standpoint were households. The surveyed employees re- quite different from those of the entrep- sponded that their family size might be reneurs surveyed. Another questionaire reduced from 4 to 2 if moving occurred was thus included in the KRIHS survey, since they would want to leave their with a random sample of 295 employees children behind in Seoul. However, about working for the surveyed firms. They 80 percent of employees did not want to pointed out three critical problems faced resign or change jobs because of their when moving out of Seoul: firm's relocation. 1) Housing (29.0%) The employee's response to industrial 2) Children's education (27.3%), and movement at the intra-regional level (i.e., 3) Public services and amenities such within the Seoul Region) was significant- a medical facilities (21.7%). ly different from that at the inter-re- 218 gional level. In the former case a major- manufacturing establishments were ity demanded commuting buses, rather housed in the large-scale industrial than company housing. In the latter case estate(size: 5.73ki). A total of 415 plants they showed more interest in a sufficienL came into operation at that time, produc- increase in wages to compensate for their ing mostly textiles, chemical products, moving expenses as well as the provision and machinery. of company housing. Since 1978, the Industrial Estate and Water Resource Development Corpor- Comparisons of Before-Relocation ation(IEWRDC) has begun to sell indust- with After-Relocation: The Case rial lots to individual firms only from of Banwol Seoul and neighboring satellite cities with a maximum limit of 1.65 ha. But the Banwol, a new industrial city, is lo- economic recession of 1980-81 accom- cated at 35km southwestwards from pained by political instability made little Seoul(see Figures 3 and 6). The city progress in attracting firms. The govern- has been under construction since 1977, ment, concerned with low occupancy, had in order to accommodate small and to remove the above-mentioned size limit m.ediumsize firms to relocate from the to induce industries. As the business cy- capital city. As of September 1984, 648 cle recovered gradually later in 1982, all TABLE 18. MAIN CAUSES FOR RELOCATION Rank Motivations Percentage 1 Plant expansion 50.6 2 Relocation order 36. 9 by the government 3 Government incentives 6. 5 4 Industrial linkages 3. 6 5 Heavy tax imposed 1.8 in Seoul Source: KRIHS(1984) Issues and Problems In Pianning and Implementing Industrial Location Policies In Korea: A Planner's View/ 219 industrial lots were sold out. To date, treprenuers showed their responses to Banwol contains 32,000 manufacturing price incentives. employees and continues to grow steadily As given in Table 18, for about 37 to reach a planned population size of percent of establishments the relocation 77,000. was forced by the government relocation In May 1983, an ad hoc fact-finding order. It is remarkable, however, that survey was implemented by IEWRDC to only 6.5 percent of them cited govern- probe the on-going situations already lo- ment incentives such as "tax exemption" cated in Banwol. Out of 215 firms re- and financial support. The second and sponded, about a half(110 firms) were third items, main government policy in- satisfied with the condition after reloca- struments, represent rather a smaller tion, while 87 firms reserved the judg- portion of firms than one might have ex- ment on their relocation decisions. The pected. remainder of surveyed firms found the The survey also disclosed that 22 per- relocation from Seoul to be unsatisfac- cent of the firms had their headquarters tory(IEWRDC, 1983, pp.14-15). offices in Seoul and 67 percent their To study firms' operational character- liaison offices in Seoul. Thus nearly istics after relocation, the KRIHS con- nine out of ten firms had a linkage with ducted another survey in August 1984 so called the central managerial function sampling 155 firms which were operating in Seoul. Figure 8 illustrates how fac- in Banwol. The average firm size, in tory and headquarters locations were terms of employees, increased from 70 to distributed within the Seoul Region. It 80 after relocation. More importantly, show that Seoul dominates the spatial the average size of industrial sites ex- organization among satellite cities and panded about 3.1 times; those firms relo- the surrounding Gyeonggi Province in- cated from Seoul owned sites 3.8 times cluding Banwol. In Korea, the authority more than before. of important decision making is mostly in According to the survey, the first and firm headquarters and is almost negligi- foremost cause for moving to Banwol ble at the plant level(Park, 1984, p.17). was "plant expansion." The government's Besides, the separation of production un- provision of industrial estates at low its and decision-making units would be prices itself was regarded as the most imperative so as to overcome potenitial powerful incentive for "plant expansion," difficulties of interacting with govern- acknowledging the fact that in Korea ment agencies in Seoul. Also importance land is very scarce resource. Such loca- of face-to-face contact between mana- tional behavior of the profit-seeking en- gers and forign buyers cannot be under- 220 'rhTe ( Uij ongbu N Buchon te ungnac a t aoa e dtue Ahnyang 3.6 % GYEp,NGGI PROeINdCE Source: Korea Productivity Center (1980e . FIGURE 8. PLANT AND HEADQUARTER OFFICE LINKAGE IN THE SEOUL REGION stated. Finally, Table 19 shows specific prob- In addition to thy e locational disadtan- lems from thef entrepreneur's viewpoint, tages mentioned abone, the relocated comparing those expected before reloca- firms have experienced a 20 to 30 per- tion and those actually faced after re- cent incerease in operating cost. The en- location. The financial burden, caused by trepreneurs in Banwol complained most moving, ranks first as the most critical about the additional expenditure arising problem, which includes expenditures for from the commuting services for em- new plant and dormitory construction, ployees. Figure 9 shows about 40 per- commuter buses, and so forth. In general, cent of employees are commuters from the firms subject to relocation orders Seoul and neighboring cities(e.g., Inchon, worried mucp about the marketing prob- Ahnyang, and Buchon). Under such cir- lem, but it turned out to be far less se- cumstances, almost all of firms operate rious than they expected in case moving commuting buses. Housing is another se- within the Seoul Region. Rather, skil- rious problem. Amongst the employees led manpower and housing, as well as the residing in Banwol, more than one quar- lack of community facilities in the new ter of them used company-provided dor- industrial city tend to generate more mitories. harassing problems. Lack of information Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Plcnner's View/ 221 OTHERS SEOUL 408 4,:357 INHO Qe (2.1%) 22.5% ,573 AHNYANG BANWOL 593 SUWON FIGURE 9. DISTRIBUTION OF COMMUTERS TO BANWOL TABLE 19. COMPARISONS OF BEFORE AND AFTER RELOCATION (unit: %c) Major Problems Expected Encountered Before Relocation After Relocation * Financial burden 37.0 (1) 32. 8 (1) * Marketing 20. 3 (2) 8. 6 (4) * Skilled manpower 16.9 (3) 23.8 (2) recruitment * Lack of housing and 13. 0 (4) 2)3.3 (3) community facilities • Raw material supply 9.4 (5) * Information service 3. 4 (6) 9.0 (5) * Infrastructure - 1.9 (6) * Others 0. 6 Note: The number in the parentheses refer to respective ranks Source: KRIHS(1984) 222 services or poor access to managerial of the Industrial Distribution Law in and technical information pose another 1977, there have been growing com- vexing problem. plaints among entrepreneurs against the industrial relocation policy itself. After V. CONCLUDING REMARKS years of monitoring, it was found to be almost an impossible dream to implement the industrial dispersal program force- With the advent of its legal proviriion fully. in 1982, the Growth Control and Man- The second problem is that the gov- agement Plan for the Seoul Region was ernment put too much emphasis on con- able to adopt industrial location as a trol measures. It was acknowledged that predominant means to achieve the popula- government directives and administrative tion decentralization from Seoul. Never- orders were easily mustered simply be- theless, any government agency in charge cause they do not incur any financial re- of industrial location and related prog- sources. But such compulsory measures rams enconutered with a maze of coor- would often distort the market mechan- dination among the Economic Planning ism, reducing the efficiency of individual Board, the Ministry of Construction, the choice of industrial location. Thus, a Ministry of Trade and Industry, the 'more carrot, less stick policy is prefer- Ministry of Finance, the Ministry of able." As Mills(1982, pp.12-13) relevant- Home Affairs, the city government of ly pointed out, government programs to Seoul and various levels of local gov- control industrial location should be re- ernment. garded as a "second best" strategy: On the surface they agree upon the Typical attempts to control city sizes, by basic policy goals, but implementation deciding which industries should locate has another story due to their conflicting where, may even make existing situations interests. MOC, for instance, was in a worse instead of better. Governments strong position to control further crea- are maladroit at deciding which locations tion and expansion of manufacturing have comparative advantages for which plants in the Dispersal Zone. On the industries. In the end, the result of other hand, MOTI seemed very reluctant government location regulation is likely to promote industrial relocation. Besides, to be to stifle industrial growth. the Gyeonggi provincial government did not want to accommodate relocated plants Direct government intervention could be whichmaycause pollution problems within justified only when it is necessary to its jurisdiction. Since the enforcement alleviate "market failure." With limited Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 223 government financial resources, it may be The fourth problem is that the govern- more efficient to induce private invest- ment policy tends to focus mainly on ment to some high technology industries moving industries themselves, without and small-scale new town development due considerations to employees and linked with suburban commuting railroads their households. It is more important to in the Seoul Region. compensate the welfare loss of the relo- The third problem is how to incorpo- cated. In this sense, plans and programs rate "firm size" considerations into in- should include the appropriate provision dustrial relocation programs. Program of social infrastructure; e.g., housiing, selection and implementation should even- educational and medical facilities, com- tually provide a benefit-cost framework mercial service, and entertainment and for the manufacturing firms of various recreational facilities. Ignorance or sizes. This problem is directly related negligence of these programs may jeopar- to the question of who must be relo- dize the success of policy implementation cated. The current industrial relocation itself. program in Korea admittedAly discrimin- Fifth, the implementation of ;ndustrial ated against the small and nmedium sized relocation policy can be effectuated with industries. Large firms are able to ex- non-economic means. Under a highly ploit government relocation programs at centralized government system in Korea, their advantages, enjoying the economies implicit policy measures are of more sig- of scale. In contrast, smaller firms ex- nificant importance. Increasing the auto- isting in metropolitan sites, are unable to nomy of local government, coupled with survive b, government control measures, administrative decentralization schemes, because most of them suffer chronically can undoubtedly mitigate the regional from financial plight. In devising a dis- disparity problem. A related issue is the persal policy, the government financial redistribution of government power in incentives barely arrived at the small administering industrial location, which scale manufacturing or workshop-like un- means transfer of rights to localities, By its. The "incubator hypothesis" indicated doing so, local governments could com- that small firms start up in central loca- pete with each other to attract plans and tions that provide necessary services and people by a combination of infrastructure infrastructure until they grow strong provision and taxes and user charges to enough to move for expansion(Lee, 1984, finance the required expenditures. What p. 12). Moreover, the relocation of small they need is the ability to collect taxes firms hardly occurs at the inter-regional and improve the local administrative level capacity. 224 It may be premature to conclude that change of land use control. Al- the governent's policy goal to disperse ternative policies can be im- the population was not attained with the plemented by either imposing heavy industrial relocation. But the lessons locational surcharge(e.g. congestion learned from the policy-making and im- tax) or reinforcing environmental plementation can be valuable to other de- protection standards. veloping countries under the similar con- 4) The incubator hypothesis demons- ditions. In brief, the following recom- trates that it may go too far to mendations are suggested to guide future regulate relocating small firms(i.e. industrial location policies in Korea. plants with five to twenty em- 1) For the effectiveness of policy im- ployees), which seem essential for plementation regarding industrial the viability of urban economy. In- location, it seems mandatory to con- stead, newly born small-scale and solidate the current dual system of pollution free industries could be institutional arrangements and their accommodated using the vacated legal provisions at the ministerial premises in the Dispersal Zone. level. 5) At the intra-regional level, the 2) The government's effort to provide survey confirms that the relocated adequate industrial sites should be firms were hampered with financial continued as one of the most power- burden due to moving expenses, in- ful policy instruments, while avoid- crease in operating cost, and man- ing land speculation by industrial- power recruitment. This fact im- ists. Also, an information service plies that a priority of financial center on the availability of inidust- support should be given to the re- rial sites should be established. location-ordered firms in need of 3) Advantages of agglomeration econo- "plant expansion." mies in Seoul is so immense that it 6) At the inter-regional level, the cannot be a feasible solution to main target group of industrial re- issue the relocation order to non- location should be large enterprises urban type industries solely by zon- which have investment potentials ing. Some interim measures should to establish branch plants away be taken to balance the disadvan- from the Seoul Region. tages arising from the abrupt Issues and Problems In Planning and Implementing Industrial Location Policies In Korea: A Planner's View/ 225 REFERENCES 1. Choe, S.C. and B.N. Song(1982), "An Report on Industrial Relocation(in Evaluation of Industrial Location Korean), Seoul. Policies for Urban Deconcentration 9. 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