Economic Rivals in a Laissez-Fairyland : THE WARRIOR WORKER : The Challenge of the Korean Way of Working <i> By Robert Kearney (Henry Holt: $24.95; 266 pp.) </i>

For at least 15 years, South Korea has been known to outsiders as “the new Japan,” thanks to its rapid economic growth and, more particularly, its habit of grabbing export markets for just those manufactured goods that the West once cherished as its own: televisions, cars, microchips. But the name has stuck for so long that when they hear it, Koreans do not know whether to cry, smile or fall asleep with boredom.

They might cry because the one country Koreans hate above all others is Japan, thanks to having been brutally colonized by their neighbor from 1906 to ’45. They might smile because the one thing they want above all else is to beat their old enemy at its own game. But they might fall asleep at the thought that outsiders could not find a better description of this hard-working, dynamic economic success story.

The great virtue of Robert Kearney’s book is that he does find new things to say, and new ways to describe South Korea. He shuns facile comparisons with Japan, based as they are on the two countries’ proximity rather than on real similarities. In particular, he is not fooled by the fact that, as in Japan, Korean business is dominated by huge paternalistic conglomerates in which workers and managers put in long hours and come to think of the firm as a surrogate family. The reason is that the similarities end there.

The big difference is that South Korean society and most Korean companies are run almost on military lines. There is no such thing as the “consensus management” famous (if exaggeratedly so) in Japan. Ownership of big groups such as Hyundai, Daewoo, Lucky-Goldstar or Samsung is concentrated either in the hands of an entrepreneurial founder or his successors, and orders come firmly from the top.

In describing how South Korea works and what it is like to be a worker in Korea, Kearney is refreshingly frank. Though he is sympathetic to the country and admiring of its people, he is keen to bring the bad news as well as the good. Workers are exploited, thanks in part to the suppression of trade unions under the successive military dictatorships that governed the country from 1961 until 1987, when free elections were held.

Hours are painfully long and the safety record is abysmal, especially in the many sweatshop subcontractors that serve the big industrial groups. Industry always holds some dangers: In Japan in 1987, according to Kearney, 0.61% of all workers were injured or killed, while in Taiwan the rate was 0.7%, in Singapore 0.93%. But in South Korea, the rate was an appalling 2.66%.

Democracy has improved things a little since 1987. Trade unions are slowly reestablishing themselves and hundreds of strikes have succeeded in gaining higher wages and better conditions. Nobody should assume, however, that the country has been transformed: The army is still strong and the habit of union-bashing dies hard.

The great virtue of this book, then, is that it examines South Korea on its own terms, and that it does so with honesty. But it also has great vices. Chief among these is that the author does not appear to understand the economic context in which he is writing: He can report well, but explains badly. Worse, he risks seriously misleading his American readers.

South Korea has had an authoritarian government and its business is concentrated in relatively few hands. This, Kearney claims, is an “only nominally capitalistic country.” If he thinks that, he does not know what capitalism is, nor what has made it successful in South Korea. A market economy, in which prices are set by supply and demand; entrepreneurs able to set up firms and become fabulously rich by selling goods freely at home and abroad: This is capitalism in the raw.

It is also clear that, as in Japan and many other countries but generally unlike in America, South Korea’s government has interfered with its economy. It has encouraged this, subsidized that, channelled finance here and given favors there. The important thing to understand, however, is that the government has sought to work with the market, not against it: It has exploited capitalism, as well as the workers.

South Korean dictators have not imposed central plans, as in the Soviet Union, nor have they tried crudely to tell business what it can and cannot do, as India’s powerful bureaucracy has done. Instead they have offered guidance but, most of all, they have sought to keep Korean business harnessed to market forces. The most important technique has been an open trade policy.

Few Americans understand or accept this--including Kearney. They can see Korean trade barriers against cars or cigarettes and conclude that the key to Korea’s success has been protectionism, combined with open markets elsewhere (notably in the United States). Other people’s free trade has been important, but it is not enough. Korea has carefully opened vast parts of its economy. Why? To ensure that Korean exporters themselves buy all their inputs--raw materials, parts, systems--at the cheapest prices. On inputs, a border tariff is as much a tax on exporters as it is on importers.

It is not closed borders but rather this openness in trade that sets Korea apart from other developing economies. America and Americans need to be aware of that in tempering their current instinct for trade retaliation but also in seeking to emulate their successful rivals.

Kearney’s other great vice is the wider importance he seeks to attach to the exploitation of Korean workers. Korea’s management style, he asserts, “has been responsible for a loss of employment and commerce in the United States.” When malls in San Diego stock Korean shirts, he claims, all sorts of Americans suffer. This is dangerous nonsense. The whole purpose of exporting is to pay for imports from cheaper sources. Sadly, Americans are benefiting from exploited Korean workers, not suffering from them.

And exploitation does not even guarantee that Korean goods are competitive. Kearney writes (correctly) that Korean wages are lower even than those of some Asian rivals. On the same page, he points out that productivity also is very low in most Korean industries. A pity that he does not see the connection.