Greasing Korean Business

Until recently, American businessmen working in South Korea couldn't afford to leave home without a little more than their American Express cards. Specifically, they needed cash. But not for hotel bills, meal costs, souvenirs from the world-famous Itaewon shopping mall, or other travel expenses.

No, the cash was needed to pay a "gratitude fee"--or bribe, depending on whom you asked--to his Korean counterpart for the privilege of doing business.

Naemul, or "gratitude fees," are as institutionalized in Korean business practices as negotiation and dealmaking. At the end of any business meeting, the solicitor (for example, a subcontractor) quietly and unceremoniously hands an envelope full of cash to the solicitee (for example, the contractor).

In the Confucian world of Korean business, the practice of naemul signifies respect and deference. Most businessmen see nothing unethical about this custom. They point out that Koreans have practiced naemul ever since their country was freed from Japanese colonial rule in 1945 and have still enjoyed a rather spectacular rise from agrarian backwater to industrial power.

Indeed, naemul has been around for as long as Korean business has. The practice, relatively simple on its face, has some elaborate rules. For instance, the envelope must always be sealed. The giver must always bow his head and present the envelope with both hands. And perhaps most importantly, the receiver must never ever look inside the envelope while still in the giver's presence.

The amount of money in the envelope is of only secondary importance. It is the act itself that is significant. In a society that values respect for elders and superiors above almost anything else, naemul has come to grease the wheels of almost every economic transfer. Those who are unaware of the procedure or, worse, choose to ignore it might as well not even bother playing the game in the first place.

The ritual of naemul is an outgrowth of the Confucian grounding upon which Korean society is based. Just ask any Korean or Korean-American about the New Year's Day custom of parents, grandparents, uncles, aunts and other adults handing out envelopes of money to children, who respond with a long, ceremonious bow and a wish of good blessings. Because of this fundamental grounding, naemul in one form or another has penetrated almost every other aspect of Korean society.

The Korean educational system, long noted for its emphasis on merit in general and high standardized test scores in particular, is at the same time characterized by parents who offer "gratitude fees" to teachers. Curiously, the less aptitude a child seems to show in the classroom, the more generous his or her parents seem to be with such "fees."

As one might expect, businesses competing for government contracts also engage in the practice--something that would certainly raise eyebrows in the United States. Just about any economic transaction, from a supply shipment to an express mail purchase, could be expedited by a "gratitude fee."

American exporters, for instance, have long been aware that they can get their products to market quicker and secure the all-important initital market share by engaging in naemul with dock or port workers. These workers then repeat the process with truckers, who pay "fees" to wholesalers, who would pay retailers, and so on. Only in this way could each participant in the chain hope to compete effectively.

One particularly noteworthy spinoff of the naemul practice is keup haeng ryo, the practice of offering envelopes to government officials to expedite the processing of state-issued certificates and licenses.

Although this practice is used ostensibly for garnering different kinds of licenses, keup haeng ryo givers more often seek the highly-sought emigration papers needed to move to America. With a waiting list of up to ten or more years for would-be emigrants, many well-off Koreans choose to buy their way to the West.

This omnipresent custom raises a serious question: Where to draw the line between a monetary payment made out of respect and adherence to tradition and outright bribery. It is this dilemma that Korea's newly-elected president, Kim Young Sam, has tried to address. His answer has been quite clear.

Kim, Korea's first civilian president since General Park Chung Hee staged a coup in 1961 and established military authoritarian rule, has issued a sweeping rebuke of the practice of naemul since taking office earlier this year. In a cascade of reform legislation, Kim has attempted to put the practice of naemul out of commission for good.

He has outlawed the "gratitude fees" in commercial activity, government operations, education and almost every other aspect of Korean life. The scope of the legislation extends even to "wedding solicitations." By custom, when a couple is to be married, the families of the bride and groom send an announcement to everyone with whom they are even remotely familiar. The real purpose of the announcements, of course, is to solicit money to pay for the wedding.

Almost everyone who receives an announcement replies with a donation; not to do so is frowned upon. Kim has gone so far as to make these "solicitations" illegal. The social purpose of this decree is unclear, but the rule effectively underscores the thrust of Kim's mission: to root out corruption and appearance of corruption throughout Korean society.

The past several months have thus been extemely turbulent in South Korea. Largely unnoticed by the outside world, Korea--an increasingly important player on the world stage--has undergone a historic and often painful break with tradition. Critics of the new president complain that he is dismantling the system too quickly and with reckless abandon.

They fear that the economy, greased for so many years with the plentiful oil of naemul, will contract severely. For example, they point out that most Koreans' base salaries are artificially low, with the expectation that "gratitude fees" will make up the difference.

Indeed, Kim has at times seemed to get carried away by his reformist zeal, promoting legislation against more conventional practices such as intrafamily asset transfers, which are widespread in a country whose effective average tax rate nears 60 percent.

Kim's efforts must, however, be seen within the larger context of Korea's role on the world stage. As Kim has stated repeatedly, these institutional reforms, no matter how difficult they may be to implement or how antithetical to Korean culture they may be, are necessary to put his nation on the road to true modernization, and to win Korea a place among the most developed nations in the world.

Korea has been called a "little dragon" and the "next Japan," a country poised on the brink of economic superpower status. But this notion has blinded some observers to the fact that at many levels, Korea remains a backward country. For starters, the military controlled the presidency for 32 often brutal years from 1961 to 1993.

Moreover, much of Korea's population still labors in rice paddies on the hilly farmland, and uses relatively crude machinery and techniques.

In short, the Third World image of Korea, made famous by the television series "M*A*S*H," has not been completely vexed.

Korea will have to become a truly modern nation to overcome these stereotypes. And few nations in history have made much progress in the presence of widespread corruption.

The modernization struggles of Latin American and African countries can be traced to this root; internal corruption also contributed to the downfall of the Soviet Union and the Eastern bloc.

President Kim is correctly attempting to eliminate an entrenched system of suspect ethical foundation so that internal corruption cannot impede Korea's progress.

His efforts could not come at a more propitious time. Korea is indeed taking a pivotal position on the world stage. Because North Korea's communist dictator Kim Il Sung nears death, one of the last communist holdouts could soon enter negotiations with its southern neighbor to reunify the country and drive yet another, perhaps the final, nail in the Cold War coffin.

Under Prime Minister Hosokawa, the new Japanese government is making long overdue apologies to Korea for Japan's cruel subjugation of the Korean people during the colonial period. As a result, the two countries seem on the verge of abandoning their historic distrust and working together to lead the continuing industrialization of East Asia.

If Korea hopes to capitalize on its potential role, it must clean up its economics and its politics. Kim Young Sam should be commended for his courage in the face of hostile opposition and numerous death threats.

Democracy and free enterprise, not surreptitious bribery, are the stuff of world powers. Envelopes full of money will not help Koreans to achieve that status.