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Hong Song and Wensong Bai

The pharmaceutical industry, especially the biopharmaceutical segment, is a high-tech sector characterized by high investments and high prices. But it is also a sector with high risk. Traditionally, only advanced industrialized economies have been able to support such an industry. Recently, however, the internationalization of R & D activities for new drug development, combined with favourable local factor conditions in emerging economies, has worked to change this situation. Small and specialized biopharmaceutical firms from emerging markets have begun to compete successfully along the global value chain. This study examines three of the leading Chinese firms in this sector to illustrate the primary factors that have driven their growth. The study shows that the global shift of R & D activities to developing countries has provided market demand to stimulate the growth of indigenous firms. At the same time, the local, sectoral innovation system in China, including universities, state research institutions and the regulatory environment, has provided financial and human resources, as well as infrastructure to support this growth. Yet the histories of these firms also underline the critical role played by the entrepreneurial founders of these firms in pursuing innovation through capability building and development. How these companies may continue to develop within the Chinese context and become more global players as the industry grows and matures is an interesting question for research.

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

Amid globalization and knowledge-based economies, many countries have given higher priority to education reforms. However, when it comes to specific goals, policy agendas, and strategies regarding education reform, consensus among countries has yet to be formed. For example, Korea strongly focused on lowering college advancement rates and reducing the test burdens on students. In contrast, increasing college enrollment rates and improving the test scores of students in secondary and primary schools are major goals of the U.S. and the U.K. Thus, the direction of Korea’s education reform may appear to be headed towards the opposite direction as those of the U.S. and the U.K. In Korea, as discussed in the previous chapter, the ‘education bubble’, which is defined as persistent increases in educational expenditures that do not contribute to human capital accumulation, formed since the 1990s when the surge of demand for higher education enlarged the size of private tutoring and low-quality colleges with their graduates receiving wages lower than high school graduates. Korea’s education bubble is the result of the quantity-oriented expansion of education, which was derived from the consistent demand for education amid low improvements in quality and weak horizontal differentiation among schools and colleges.

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

In the previous chapter, we suggested the need for education diversification reform, which includes policies to improve the quality of education, particularly in vocational skills and social and emotional skills, as well as policies aimed at enhancing the quality of university education while easing the exit of low-quality universities. The Meister High School was the key policy of the education diversification reform. Vocational high schools in Korea have continuously deteriorated since their glory days in the 1970s, and such change seems to be one of the leading causes behind the education bubble. An important reason why Korean parents spent the enormous expense on private tutoring and the tuition fees of low-quality universities for their children was that vocational high schools could not guarantee good jobs for the graduates. Hence, the vocational education track was not a good alternative to the general education track to universities. However, Korea’s industries have continuously asked for stronger vocational and technical education because many graduates of low-quality universities are not equipped with adequate skills and not ready to work in occupations that once were filled by graduates of vocational high schools. Therefore, Meister High Schools, which not only cater to the needs of industries but also provide students and parents with an alternative to low-quality universities, are expected to burst the education bubble.

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

It is well-known that Korean students’ performance belongs to the top group in international competence tests such as OECD’s PISA (Programme for International Student Assessment), which have been testing fifteen-yearold students from the OECD member countries in reading, mathematics and science every three years since 2000. Recently, the OECD implemented a similar test for adults during the period from 2011 to 2012, called PIAAC (Programme for the International Assessment of Adult Competencies), where the competence or skill levels of 16_65-year-old adults are measured in the three areas of literacy, numeracy and problem solving in technologyrich environment skills. Surprisingly, the performance of Korea’s adult population in the PIAAC test was quite disappointing. In contrast to the stellar performance of the Korean youth in PISA, Korean adults’ skill levels turned out to be slightly lower than the OECD averages. Furthermore, the gap between Korean skill level and the OECD average widens as the population gets older. We are motivated by this puzzling fact and attempt to explore the features of Korean adult skill levels from the PIAAC data. In particular, we focus on establishing empirical patterns of age–skill profile after controlling for a rich set of confounding factors rather than establishing the causal relationship. However, we will provide a benchmark study so as to infer that weak life-long learning is the key fundamental problem for the Korean education system and labor market. It would be difficult to establish a solid causal inference about the relationship between skill levels and age simply from observing that the skill level decreases in age from PIAAC. Such observation may indicate that the skill level deteriorates as people get older, which can be interpreted as a ‘depreciation’ of human capital stock with age for some reasons. However, this may also indicate that younger generations are more skilled than older generations. That is, it might indicate that there has been improvement in skill across cohorts during Korea’s development process. To distinguish between the two possible interpretations, we need to use panel data. PIAAC, however, provides a cross-sectional data at the moment so that the empirical pattern about the cross-sectional age–skill profile from PIAAC does not clearly tell us about the precise interpretation.

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

In March 2016, it was a shock to Koreans when Google DeepMind’s artificial intelligence AlphaGo scored four wins and only one loss against Korean Go Master Lee Sedol, who is considered one of the best Go players in the world. For most Koreans, the predictions made by the Fourth Industrial Revolution Report (Schwab, 2016) presented at the Davos Forum in January 2016 seemed unreal at the time. It predicted that as digital technologies are exponentially integrated into areas of physics and biology, the way of living could change fundamentally through the emergence of new technologies such as cloud computing, big data, artificial intelligence, Internet of Things (IOT), and 3D printing. However, through the game of Go between a man and a machine, Koreans could see vividly that the Fourth Industrial Revolution was just around the corner. Furthermore, several forecasts on the labor market changes from the Fourth Industrial Revolution1 predicted that half of the current jobs could be gone by the time elementary school children become job seekers. Such warning was enough to spark a sense of crisis to parents and students in Korea that they are being educated for jobs that would eventually disappear. As a result, discussions on the necessary skills and the ways of teaching and learning these skills in anticipation of rapid technological changes were transformed into a more tangible and concrete question about how best to change the learning system in response to the Fourth Industrial Revolution.

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

Defined both as a stock of embodied and disembodied knowledge, human capital is formed through investments in not only schooling and job training but also in research and development (R & D) and informal knowledge transfers. While knowledge and skills embodied in workers augment labor productivity and physical capital inputs, disembodied knowledge manifests in papers, books, patents, and algorithms, contributing to product and process innovations at the firm and industry levels (Ehrlich, 2007). In 2012, Korea’s expenditure in R & D as a percentage of GDP reached 4.3 percent, which was the highest in the world. Korea also had the largest number of researchers per total population among the top 10 countries in R & D expenditure. In particular, Korea is home to several large conglomerate firms such as Samsung and Hyundai, which are world leaders of providing innovative products in some sectors. However, there has been a rising concern that Korean researchers in government-funded research institutes (GRIs) and universities are neither contributing to creating new opportunities for the economy nor solving big societal challenges (Song et al., 2014).

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

There is little argument about the critical role of human capital in the process of development. There are a variety of dimensions in the sources of human capital formation in real life, from formal education at schools to on-the-job training at work places and R & D at research universities. We observe, however, that in fostering human capital formation, both academia and the international community of development aid have placed asymmetric attention to formal schooling, in particular to general education, although the emphasis has recently shifted from primary education to secondary and tertiary education. It is obvious that general education at schools is the backbone of human capital formation of any country so that the past emphasis on general schooling in promoting the development process of the less developed countries should be continued. However, it is equally obvious that vocational education, more broadly technical and vocational education and training (TVET), also plays a critical role in materializing the development potential of the less developed countries by various channels such as labor market income generation, poverty alleviation, effective school-to-work transition, and lowering youth unemployment. Here we argue the importance of vocational education in facilitating the development process in particular for developing economies, which either struggle to take off or are going through structural transformation, which has been relatively less emphasized in international development literature. Furthermore, by analyzing the recent Korea’s development cooperation project (BEAR Project) on vocational education and training for the Southern African Development Community (SADC) region, based on Korea’s own development experience, we attempt to draw important lessons about what the essential components of development aid would be in order to promote vocational education in terms of effective human capital formation, aligned with national development plans.

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Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

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Human Capital and Development

Lessons and Insights from Korea's Transformation

Ju-Ho Lee, Hyeok Jeong and Song Chang Hong

During recent decades, Korea has been one of only a handful of countries that have made the successful transformation to become a developed nation by simultaneously achieving persistent economic growth combined with a democratic political system. Experts and political leaders worldwide have attributed this achievement to investments in people or, in other words, the power of education. Whilst numerous books have highlighted the role of industrial policies, technological growth, and international trade in Korea’s development process, this is one of the first to focus on the role of human capital. It shows how the accumulation of human capital aided transformation and helps explain the policies, strategies and challenges that Korea faces now and in the future.