POWER ON THE PACIFIC RIM : Next Step : S. Korea Hindered by Its Self-Image : Region’s second-biggest free-market economy could become the France or Britain of East Asia. But first the nation must overcome its pessimism.

At a joint-venture auto-parts factory south of here run by General Motors and the South Korean conglomerate Daewoo, visitors are given a briefing that starts with the story of how a local warlord repulsed an invasion by Japan in the 16th Century.

The point becomes clear only at the end, when the narrator declares: “Once again Korea is at war with Japan--in auto parts. And once again victory will be ours.”

The presentation, which company officials say is intended mainly to boost the morale of the factory’s workers, also illustrates this country’s determination not only to avoid subjugation but also to deny its old colonial master hegemony in the Asian-Pacific region.

In fact, South Korea is so preoccupied with Japan that some analysts say it risks missing out on the broader challenges of the emerging “Age of the Pacific” and the role South Korea might play in it.

“In government, there is no long-term thinking being done on any subject,” especially Korea’s role in Asia, maintained Korea University professor Han Sung Joo, a frequent government consultant.

As the region’s second-biggest free-market economy, some say South Korea could become the France or Britain of East Asia. A relative handful of academics and others see the country as a model for less-developed Southeast Asian nations, using its successful experience in building a dynamic economy as a magnet to attract those countries and enhance its own influence. Some even see it eventually rivaling Japan in per capita gross national product.

Most Koreans, however, fret over a long list of real and perceived shortcomings that tend to feed a national inferiority complex and color visions of Korea’s path to the approaching millennium. High on the list of concerns is what they see as a dangerous erosion of U.S. influence in the Pacific, leaving them increasingly at the mercy of the Japanese economic juggernaut.

Pessimism, indeed, now grips South Korea.

“The euphoria that developed at the (1988) Olympics has disappeared, and we are back to our normal selves--an inward-looking people,” Prof. Han said.

Problems at home have become an obsession. They include workers’ demands for big wage increases, a technological gap that has slowed the growth of manufactured exports, the return of trade deficits, a new round of inflation, speculation in real estate that has driven up housing costs, emerging bottlenecks in infrastructure such as port facilities and highways, a continuing search for a way to at least live in peace with Communist North Korea and internal political unrest.

Pessimists even find fault with an economic growth rate--9% last year, even after adjusting for inflation, and 6.8% the year before, during what were considered particularly troubled times--that would be cause for wild celebration in virtually any other country.

“Our entire economy is equal to only a single year’s growth in Japan,” bemoaned Sogang University professor Rhee Sang Woo. “How can we say that Korea is an economic power? Never!”

(Indeed, in 1990, the Japanese economy expanded by $260.6 billion--or more than South Korea’s total GNP of $238 billion.)

“A decade ago, our strength was based on low wages and well-trained labor. But now, we are losing both advantages,” Rhee added.

“Just to stay in the game is not easy, particularly when the Japanese are developing so much technology,” agreed Lee Hong Koo, Seoul’s new ambassador to Britain.

While its GNP is only 8% of Japan’s $2.9 trillion, South Korea’s global exports last year amounted to 23% of its neighbor’s. Shipments to the United States equaled 22% of Japan’s. In steel, shipbuilding, semiconductors, textiles, cement, petrochemicals and lower-end electronics, it has eaten significantly into Japan’s overseas markets.

It is the only Japanese rival in Asia with industrial conglomerates that can come close to competing with Japan’s in size. And its risk-taking businessmen have preceded the nation’s diplomats in pioneering new markets.

Education levels, moreover, promise to surpass those of Japan. This year, the number of freshmen entering junior colleges or four-year institutions of higher learning equaled 46% of the country’s high school graduates, a rate significantly higher than Japan’s 36%. The workweek remains at 54 hours even after a recent cutback. And a new drive is under way to plunge into high technology.

“This is one of the most exciting, interesting economies in the world. I tell our businessmen, ‘This place is going to go crazy! Get in here!’ ” said U.S. Ambassador Donald Gregg. “This is an extraordinary country, but most Koreans don’t realize it. They always think of themselves as a shrimp among whales.”

Economists such as Koo Bohn Ho, president of the governmental Korean Development Institute, predict that the per capita GNP, which was $5,569 last year, could nearly triple in the next 10 years to $16,000. That would produce a GNP of $800 billion.

“We would be comparable to (today’s) France or Great Britain in 10 to 15 years,” Koo said. Both European nations last year had a GNP of around $1 trillion.

“In the long run, our per capita income will be very close to Japan’s. But the question is how long. Twenty years is a bit too optimistic but in 30 or 40 years? Yes,” Koo said.

Within two years, South Korea will become a capital-exporting nation, commented Kang Mang Soo, director of international finance in the Finance Ministry. And sometime between now and the year 2000, its currency, the won, will be internationally traded, the Korean Development Bank predicted.

All of that considers only South Korea. Reunification with the backward Communist north would initially be a burden, but eventually “the international stature of Korea would be much, much greater,” said Kim Chul Su, commissioner of the Korea Industrial Property Office and a former Ministry of Trade and Industry negotiator.

“It’s difficult to think of (South) Korea catching up” with Japan, added Kim Kyung Won, president of the Institute of Social Studies in Seoul and the country’s former ambassador to Washington. “But two decades ago, it was difficult to imagine Japan catching up with the United States.”

Change in Korea’s perceptions of its broader role in the region comes much more slowly than its economic progress, in part because of an understandable preoccupation with survival that grows out of the country’s troubled past.

Throughout its history, the nation has been invaded or intimidated by Mongolia, China, Russia and Japan. Since 1945, it has been overshadowed by the influence of American cultural, military and economic power, Koo noted.

Korea has been so narrowly preoccupied with its own economic growth that it has seemed blind to the broader political goals of diplomacy. The Gulf War was a case in point.

Korea gave $500 million for the allied war effort.

“The No. 1 justification cited for our Middle East contribution was the contracts (the government) said Korea could get after the war--and they were not shy about saying it,” Prof. Han said. “The next thing they said was that it was good for maintaining close relations with the United States--as if that were the only interest.”

Lost in the debate was the fact that South Korea itself was preserved in 1950-53 as a sovereign nation by the same kind of multinational military effort that the United States forged in the Gulf.

“More than any other nation in the world, Korea should defend the right of a sovereign nation to exist,” Han complained. “Yet, the government thought the people would be convinced only by those arguments (of business and U.S. rapport). . . . That is no way to win international respect.”

There are plenty of other examples of Korea’s relative isolation.

“I am president of the Korean Assn. of International Politics, which has 700 members--and only two are Middle East experts,” Rhee noted. “No one can speak Arabic. We sent our troops to Vietnam, yet only one (of the association’s members) can speak Vietnamese. How can we organize regional cooperation in Asia?”

Koreans are talking about reunification, but only this year did any university award a master’s degree in North Korean studies, Rhee said. Nor does any university have departments for Japanese or even American studies, he added.

When President Roh Tae Woo went to Moscow last December, the first visit by a South Korean head of state, the Seoul government found itself without a competent interpreter and “imported a Korean woman living in the United States--a Ph.D. in Russian from Yale University,” Rhee said. But the woman lacked training in technical terminology--phrases like “long-term, low-interest loans”--and “walked out in the middle of the conversation” between Roh and Mikhail S. Gorbachev, he said. “A Russian of Korean ancestry had to finish the job.”

Lee, who served as a political adviser to Roh before assuming his ambassador’s post, said “our consciousness is not up to the level required” to play a leadership role in the Asian-Pacific region. Even usually aggressive Korean businessmen suffer “a low (regional) consciousness,” he said.

Although cumulative overseas investment has multiplied fivefold in the last five years, to $2.3 billion at the end of 1990, two-thirds of the total has been concentrated in just the United States, Canada and Indonesia. Only 12% has gone to all of the rest of Asia, where Japan, Taiwan and Hong Kong have outstripped South Korea.

And whereas Japan’s exports to Southeast Asia have nearly caught up with its shipments to the United States, South Korea’s market in Southeast Asia is only 40% of the size of its American market.

“Japan has paid great attention to Southeast Asia. We haven’t,” Ambassador Lee said.

Former Ambassador to the United States Kim Kyung Won agreed. “In all my academic and government background, I never came across Southeast Asia. Korea is so oriented to the north and to the big powers. We have not been aware of Southeast Asia,” he said.

Only recently, thanks partly to the staging of the 1988 Olympics, has South Korea shaken off an image of a “client state” of the United States and begun to win any significant recognition in its own right.

“The image was a problem--because we were a client state,” Kim said. “But now, it’s becoming less and less a problem.”

While they don’t want to be seen as a client state, Koreans are still very much interested in a strong U.S. presence in the Pacific. Ambassador Lee, in an interview before departing for his London diplomatic assignment, described maintaining and revitalizing Korea’s relationship with the United States as his country’s “major concern.”

“Without the United States, we cannot strike a balance” with Japan, China and the Soviet Union, Lee said. “We don’t want to see any of the three predominant in the region.”

“I don’t see any way to balance Japan other than with the United States,” agreed Prof. Han. “Koreans don’t want to support any Japan-dominated coalition.”

In security, too, “we need an alliance with the United States, even if Korea is reunified--or especially because it is reunified--because we live with neighbors that are powerful and have a record of aggrandizement. . . . No size of (Korean) military could defend the country against China or the Soviet Union,” Han added.

“If we aggregate all Asia, still we cannot cope with Japan,” commented Prof. Rhee. Meanwhile, Malaysia, Singapore and Thailand have already become so tied economically to Japan that they may as well be a part of what Rhee called euphemistically the “East Asia Co-Prosperity Sphere”--a historical reference to Japan’s wartime drive to dominate all of the region.

Given this sense of the importance of the United States as a regional balance, the Koreans are worried about current economic trends.

“The Japanese influence in Southeast Asia has become dominant, and the U.S. influence is waning. . . . We are very concerned about the health of the American economy,” Ambassador Lee said. “Quite frankly, I don’t know what to do. We want the presence of the United States not only in security but also in the economic sphere.”

In a major shift of policy recognizing that South Korea could no longer rely on the United States to supply the machinery needed to ensure the future of its manufacturing, President Roh’s government recently lifted restrictions on machinery purchases from Japan. Previously, tax incentives for purchases from America had been combined with high tariffs or outright bans to keep out Japanese equipment.

There are signs that South Korea may be slowly broadening its view of relations with its neighbors in Asia as well.

In 1989, it joined in establishing the Asian-Pacific Economic Cooperation organization, and late this year Seoul is scheduled to host the third APEC ministerial meeting. Last year, it was invited by the Assn. of Southeast Asian Nations to join the United States, Japan and Australia as a “dialogue partner” of ASEAN.

Seoul has also won diplomatic recognition in the last two years from nearly all of the former Communist Bloc nations. China remains the major holdout, but even Beijing has exchanged with Seoul trade offices that engage in consular functions.

Memberships in the United Nations and the Organization for Economic Cooperation and Development, the ultimate “rich man’s club,” still elude South Korea. But other trappings of an advanced nation, such as a foreign aid program with a fund of $335 million and even a “Peace Corps,” have been put in place.

“We can never expect to rival some of the big boys, like Japan and China. But our big advantage is that we are a quite substantial nation without being a threat to anybody,” former Ambassador Kim said. “If we were substantial and threatening, that would restrain our role.”

Kim said he would like to see Korea act as a connector--a “bridge to all Asian countries, especially ASEAN.”

Added Korea Industrial Property Office commissioner Kim Chul Su: “The Korean example of development is very relevant to other parts of Asia. And our experience is much closer to the developing nations than Japan’s.” South Korea also suffers no historic stigma of aggression or dominance, he said. “Asian countries will be more willing to cooperate with us.”

A highly placed Foreign Ministry official, who insisted on not being identified, said a unified Korea would possess both economic and military power incapable of hegemonistic ambitions but strong enough to make itself felt as a “middle-level power” that could act as “a balance and a bridge” between the region’s other powers.

It could have a military impact on the region, he said.

Although most scenarios for unification start with an assumption of a massive cutback in the combined 1.5 million armed forces that North and South Korea now maintain, the Seoul diplomat did not make that assumption.

“We would have to determine the optimum level of our armaments” by judging the “environment” and level of tensions in Northeast Asia at the time of unification, he said.

“Arms reduction in the Korean Peninsula should go in parallel with arms reduction in the region,” he said. “If the Soviet Union, Japan and China continue to build up their armaments, we would have no choice but to build up ours. What Korea could do in arms reduction should lead to regional arms reduction.”

Lack of progress toward reunification also would affect the region.

On April 12, Defense Minister Lee Jong Koo underscored that possibility by suggesting that the south might stage a strike against facilities that could build nuclear weapons, which are now under construction in North Korea. Or, diplomats in other countries fear, the south might seek its own nuclear arsenal.

South Korean Trade

(in millions of U.S. dollars)

EXPORTS TO IMPORTS FROM 1985 1990 1985 1990 Australia $369 $956 $1,116 $2,589 China 683 585 478 1,168 East Europe 108 541 68 213 Hong Kong 1,566 3,780 492 614 Indonesia 195 1,078 669 1,600 Japan 4,543 12,638 7,560 18,574 Middle East 2,888 2,009 2,933 5,295 New Zealand 38 130 123 452 Philippines 240 500 151 269 Soviet Union 60 519 42 370 Taiwan 196 1,249 333 1,452 Thailand 143 969 152 464 United States 10,754 19,360 6,489 16,942 West Europe 4,374 10,973 4,080 9,929 Other Southeast Asia 41 155 22 36 Rest of the world 4,085 9,574 6,426 8,777

SOURCE: South Korean Ministry of Trade and Industry

South Korean Direct Investment In:

(in millions of U.S. dollars)

1985 1990 Africa $ 12.1 $ 45.1 Australia- New Zealand, Oceania 80.9 141.3 Canada 61.3 298.5 China N/A 22.1 Europe (excl. USSR) 11.0 149.8 Indonesia 51.9 424.7 Japan 20.0 50.8 Latin America 59.0 120.9 Middle East 41.4 56.1 Soviet Union N/A 0.5 Taiwan N/A 2.2 United States 92.0 807.0 Other Southeast Asia 46.7 205

SOURCE: South Korean Finance Ministry