The relationship between cultural values and national competitiveness: General pattern and specific country studies of South Korea and Malaysia

Abstract

The transformative success of East Asian economies (e.g. Hong Kong, Korea and Taiwan), from agrarian to advanced economies within a short period of time, has fascinated academicians as well as practitioners. While theories abound as to the cause of these transformations, some studies focus on the role of cultural factors. The relationship between culture and the growth of East Asian economies has been studied extensively, but most studies have concentrated on the role of Confucianism. Instead of focusing on the role of Confucianism, this study undertakes a more in-depth examination of the East Asian economic phenomenon by employing a cultural model in which cultural values are categorized according to three dimensions

namely, Individualism-Collectivism, Uncertainty Avoidance, and Openness. The correlation between sub-components of culture and competitiveness was examined across many countries, followed by specific country studies of South Korea and Malaysia. Korea was selected as being representative of an advanced innovative East Asian economy

while Malaysia was chosen to represent a developing economy which tried to imitate the successes of Japan and Korea. Specific case studies are used for illustration purposes and to overcome some of the limitations of quantitative research. This dissertation starts with an outline of the research context, objectives, and the significance of the study. This is followed by an extensive review of the economic and cultural literature, a discussion of various cultural theoretical models, and a review of recent empirical findings. The studys research methodologies are explained in detail with key terms defined in terms of the research framework. For the purposes of this study, national competitiveness has not been defined by any single index, but is represented by a range of competitiveness indicators, such as innovation, education, technology, trade openness, and FDI inflows. Correlation analysis is conducted to determine the relationship between culture and competitiveness based on data from a range of countries, and then specific country studies of Korea and Malaysia are undertaken. This studys findings suggest that cultural values are highly correlated with competitiveness. Based on the correlation test, Individualism was found to have a strong positive relationship with innovation. Similarly, Uncertainty Avoidance was found to have a positive relationship with both academic performance and R&D expenditure. A culture of openness also has a positive relationship with Foreign Direct Investment (FDI) attractiveness and trade openness. All of these three dimensions have a strong positive relationship with Gross Domestic Product (GDP) per capita. The study also revealed that many of the most prosperous countries, such as Finland, Germany, Netherland, Norway, Sweden and Switzerland rank highly in Individualism, Uncertainty-Avoidance, and Openness. These countries enjoy a high rate innovation, excellent educational achievements, large expenditure of R&D, and high degree of international business openness.. Other cultural blocs, such as Latin America, the Middle East, and South East Asia rank low in Uncertainty Avoidance. These countries also rank relatively low in terms of technology innovation, R&D expenditure and academic performance. Confucian bloc countries, such as China, Japan and Korea rank high in Uncertainty Avoidance and Collectivism, but very low in Openness. These countries are yet to achieve the innovation levels of the West, and are relatively low in terms of FDI attractiveness and trade openness. Thus, the promotion of Individualism and Openness are key cultural factors for enhancing competitiveness and growth in East Asia. This study also found that Individualism was the most influential cultural factor for the promotion of innovation, trade openness, FDI openness, and GDP per capita. Uncertainty Avoidance was also found to be strongly related to national educational performance. The specific country studies of Korea and Malaysia also supported the quantitative findings of this study. By looking at the economic development process of Korea over the past few decades, this paper demonstrates that Korea has gradually begun to shift away its collectivist past and has slowly begun to embrace individualism. Although Korea certainly has at its core a strong collectivist culture, its selective adoption of certain aspects of Individualism has enabled Korea to enhance its innovation and competitiveness. Individualist values that have contributed to Koreas innovativeness and subsequent prosperity include the recognition of merit and competitive reward systems for executives and the adoption of more liberal approaches to corporate management. Uncertainty avoidance is another cultural strength of Korea. Koreas higher sense of urgency and future-oriented attitudes translate into a deep concern for R&D and education. The 1997 Asian financial crisis drove up Koreas Uncertainty-Avoidance Index, and forced Korea to further liberalize its corporate governance to catch-up to international standards. In this paper, comparisons are made between Korea and another collectivist society, Malaysia. Unlike Korea, Malaysia is relatively more tolerant of uncertainty and is more open to foreign input. However, the racial collectivism, protectionism, and low uncertainty-avoidance present a barrier to enhancing Malaysias competitiveness

particularly in the innovation-oriented industries and international business arena. Race-based collectivism limits the openness of Malaysia

the low merit-based systems of governance and Uncertainty-Avoidance culture reduce the sense of urgency in pursuing innovation growth. In addition, as a tropical resource-rich country, Malaysia has relatively a more relaxed culture. The nature of the fast changing hi-tech industry seems not to be well matched to the local culture. Overall, while Korea has become more open and more merit-oriented while highly avoidant of Uncertainty Avoidance, Malaysia has continued to reinforce its race-based form of collectivism, while still being low in Uncertainty Avoidance. And while reforms are absolutely essential if Malaysia is ever to become an innovation-driven economy in the future, for a culture with such a large culturally ingrained sense of power distance, such reforms will not come easily and certainly not without the political will to take the nation into the future. A prosperous capitalist economy demands a result-orientated capitalist philosophy. Thus, cultural change should be pursued by embracing values of competition, merit, and openness

values which have played a significant role in the prosperity of most innovative advanced economies.