The government is accelerating plans to relocate financial regulators, state-run banks and export-support public enterprises out of the capital region. Proposals to move the Financial Services Commission (FSC) and the Personal Information Protection Commission to Sejong could come before the Cabinet as early as the 25th, and a second round of public-agency relocations covering some 350 institutions is set to begin next year. The stated aim of the relocations — easing the dominance of the Seoul metropolitan area and promoting balanced regional development — is well worth understanding. But labor unions at the affected public agencies are threatening a general strike, citing potential harm to financial consumers and a weakening of industrial competitiveness. Before dismissing this as mere organizational self-interest, there are more than a few issues that deserve scrutiny.
Finance is a classic clustering industry, one that grows more efficient the more related institutions and specialized professionals gather in one place. That is why most financial firms — state-run and commercial banks as well as securities companies, asset managers and global investment banks (IBs) — are concentrated in Seoul. This holds especially true given that Korea's economy is skewed toward exports: the lending, guarantees and export insurance provided by the Korea Development Bank, the Industrial Bank of Korea, the Export-Import Bank of Korea and the Korea Trade Insurance Corporation all require close cooperation with commercial banks, corporations and accounting firms. Scattering these bodies across several regions is likely to erode policy coordination and operational efficiency.
The government, to be sure, is emphasizing that it will move beyond the formalistic even-distribution approach of the first round and instead link financial institutions to each region's leading industries. Under this plan, Busan would gather policy and maritime finance, Daegu small-business finance and industrial technology, and North Jeolla Province asset-management bodies centered on the National Pension Service. Yet it remains uncertain how effective such small-scale clustering will prove. Concerns about an outflow of specialized professionals are also far from trivial. Some analysts note that the first round of relocations — 153 institutions beginning in 2005 — delivered smaller-than-expected results. According to a recent article in the Korean Public Administration Review, the 10 innovation cities saw gains in local tax revenue, but the effect on gross regional domestic product (GRDP) was not clear.
Relocating financial and export-support institutions is a matter that must be pursued carefully, weighing multiple considerations including balanced regional development, industrial competitiveness and consumer protection. Improving living conditions will also be necessary to attract top talent. What is needed is a decision that keeps industrial and national competitiveness in mind — not one swayed by political trade-offs, spoils-sharing or bidding wars among local governments.
