A Direction of Building Local Governance in Dongnam Economic Region of Korea

동남경제권의 지역거버넌스 구축방안에 관한 연구

주소: 경남 김해시 어방동 607번지 인제대학교 경영대학원 행정학과 이우배

1. 권오혁(權五奕) - 제1저자

부경대학교 경제학과 조교수

서울대학교 환경대학원 도시및지역경제 박사

(전)한국지방행정연구원 지역경제팀장

okwon@pknu.ac.kr

2. 이우배(李宇培)

인제대학교 경영대학원 행정학과 조교수

University of Southern California 도시및지역계획 박사

(전)경남발전연구원 도시지역연구실장

wblee@inje.ac.kr

3. 김재홍(金宰弘)

울산대학교 행정학과 교수

Carnegie Mellon University 행정학박사

jhkim@ulsan.ac.kr

A Direction of Building Local Governance in Dongnam Economic Region of Korea

동남경제권의 지역거버넌스 구축방안에 관한 연구

Ohyeok Kwon (Department of Economics, Pukyung National University)

Woobae Lee (Graduate School of Business Administration, Inje University)

Jae Hong Kim (Department of Public Administration, Ulsan University)

오늘날 동남권의 주요 도시들은 기계․금속산업을 중심으로 거대 규모의 산업클러스터로 성장하였을 뿐 아니라, 상호 긴밀히 연계된 네트워크 도시를 형성하고 있다. 이러한 현상은 서로 연계된 산업도시들 간의 보다 높은 수준의 협력을 필요로 하며, 나아가 행정구역 경계를 넘어선 광역적 거버넌스를 요구한다.

이 연구는 동남권 지역경제에 대한 조사와 국내외 유사 사례에 대한 검토를 통해 동남경제권의 경쟁력을 향상시키기 위해서는 지방자치단체와 민간 부문이 주도하고 중앙정부가 지원하는 형태의 광역적 거버넌스를 구축할 것을 제안한다. 광역적 거버넌스의 공간적 범위는 부산, 울산, 경남을 일차적 대상으로 하고, 점진적으로 대구와 경북 지방까지 확대하는 방안을 검토할 필요가 있다. 거버넌스 조직의 핵심 기능으로는 광역적 경제통계 작성, 경제발전의 중장기 계획 등을 제시하였고, 또한 동남권 지역에 취약한 국제적 금융, 무역, 법률서비스 확충 및 공항과 도시철도 같은 광역인프라 구축을 포함한다. 중앙정부는 행․재정적 지원을 통해 이러한 거버넌스를 강화하고 지방자치단체 간의 협력을 촉진하는 역할을 수행할 수 있다.

주제어 : 지역거버넌스, 클러스터, 다핵형 도시구조, 산업네트워크, 지역협력개발

Dongnam region has grown as the most prominent cluster of mechanical engineering and metal industry in Korea since the late 1970s. Accompanying with this growing Dongnam region, a problem has risen from geographic mismatch between metropolitan-wide industrial cluster and its administrative boundary. Since industrial cluster has no specific administrative boundary, adequate government support for developing industrial cluster has not been provided. This article is aimed to find a more successful way to build a metropolitan-wide governance for enhancing industrial cluster in Dongnam region. We begin a research with reviewing a current study of regional cluster and its governance. Next, current situation of development of industrial cluster in Dongnam region is examined to suggest policy for more competitiveness. At the end, this paper provides some implication to planners and policy makers.

Keywords : Governance, Cluster, Polycentric City, Industrial Network, Collaboration Economy

Ⅰ. Introduction

Dongnam region has grown as the most prominent cluster of mechanical engineering and metal industry in Korea since the late 1970s. In the form of agglomeration and network of a specific and its related industry, Dongnam region has formed a linear industrial belt along with the inter-regional South Coast Highway and contain about ten industrial cities. Industrial cluster continues to expand to neighboring Daegue,  Gyeongbuk and Cheonnam region and shows a pattern of neckless or wheel. It consists of six local cities and provinces of Busan, Ulsan, Gyeongnam, Daegue, Gyeongbuk and Cheonnam.

The spatial boundary of Dongnam economy is variously defined over the scopes of the study. Some research reports from the major research institutes in Korea such as KRIHS(Korea Research iNstitute for Human Settlement) and KRILA(Korean Research Institute for Local Administration) define Dongnam region as the same as Yeongnam region including Busan, Ulsan, Gyungnam, Daegu and Gyeongbuk. So the national government usually designates the boundary of Dongnam region as the same as Yeongnam area. However, Dongnam region is defined including only Busan, Ulsan, and Gyungnam by the local governments in the Yeongnam area. This study follows the latter definition of Dongnam region.

Accompanying with this growing Dongnam region, a problem has risen from geographic mismatch between metropolitan-wide industrial cluster and its administrative boundary (Kwon, ed. al, 1998). Since industrial cluster has no specific administrative boundary, adequate government support for developing industrial cluster has not been provided. Responding to the problem, academics and policy makers maintain need in establishing a metropolitan-wide governance for supporting a cluster (KIET, 2003). In fact, without any regional governance system, there are deep doubts in the success of national government's regional industrial policy which has been implemented since 2003.

National government's trial in 2003 to build a regional development agency in each metropolitan-wide economic region has failed (KIET, 2003). In the case of Dongnam region, which includes Busan, Ulsan and Gyeongnam, all three rejected national government's proposal of establishing a Dongnam regional development agency. They argued that a newly created metropolitan-wide development agency might weaken local government's authority which has been empowered with the enactment of local self-control rule in the early 1990s. It has been expected that a new system would have created confusion in the role of local government in regional development. In addition, local governments of Ulsan and Gyeongnam which are located in the outskirts of Dongnam region are afraid that a new metropolitan-wide agency might be inclined to favor a central city, Busan, rather than balancing the development of already polycentricized metropolitan region.

This article is aimed to find a more successful way to build a metropolitan-wide governance for enhancing industrial cluster in Dongnam region. We begin a research with reviewing a current study of regional cluster and its governance. Next, current situation of development of industrial cluster in Dongnam region is examined to suggest policy for more competitiveness. At the end, this paper provides some implication to planners and policy makers.

Ⅱ. A Theoretical Background of Metropolitan-wide Planning and Governance

1. A New Industrial Space and Network

A new industrial space is a product of more flexible network system of production in knowledge-based economy. More flexible system of production means that a firms can change its production system more easily for adapting to new technology and market situation. To be more flexible in the rapidly changing global market, firms should depend more on network system of disintegrated production (Batten, 1995; Castells, 1996).

Three characteristics of flexible network system of production are as follows. First, it enables firms to adapt to changing technology and market demand more rapidly. Second, to adapt more easily, firms streamline their production to be competitive and efficient and outsource production process to other firms in network. In other words, successful networks impact directly on the competitiveness of firms. Third, firms depend more on new technology, either transferred or developed.

This new innovative system of production changed an industrial geography. A new concept of industrial cluster has been introduced to explain a network-based and more flexible production space (Castells. 1996). It also causes restructuring of urban system.

Six advantages of industrial cluster have been found (Cooke, 2001; Lee, 2006). First, agglomeration and network of professionals create synergy and accelerate technology development as a result. Second, agglomeration of firms enables them to reduce logistic costs through close supply chain of parts and materials. Third, cluster of firms creates a large market of products and also enable them to connect to global market more efficiently. Fourth, to adapt to changing market and technology, firms can change their production system more rapidly and in lower costs. Fifth, agglomeration of both professionals and firms in a specific region creates more flexible labor market. Sixth, cluster enlarges economy of scale and an scope of division of labor.

Among many factors creating competitive advantage in a cluster, the most essential one is effectiveness of industrial network (Camagni, ed., 1991; Cooke, 2001; Porter, 2001). Industrial network means various kinds of networks of firms and service agencies in process of production and sale. Different from other traditional industrial complex, cluster contains close network of all participants in production and produces synergy.

In addition to collaboration among manufacturers, network system includes various forms of relationship between actors in all economic areas, such as R&D, education, business service, residence, recreation, infra and environment, etc. Close network and collaboration of these actors in cluster make a region to produce new information and technology and goods and services more efficiently.

2. Polycentric Urban System

New industrial system and agglomeration changed regional growth theory and urban system (Batten, 1995; Scott, 1988; Simmie, 2003). In traditional system, a central city dominated economy of the metropolitan area. However, with development of new transportation and communication technology, a central city lost their superiority to suburban cities. In other words, growing competition between central and suburban cities changed traditional concentration and diffusion theory of urbanization which dominated urban geography for last decades.

Knowledge-based economy changed relationship between central cities and suburbs. Rather than being competitive and hierarchical, their relationship becomes more collaborative (Batten, 1995). In a multi-nuclei form, cities and suburbs have different functions. Having different kind of industry, they depend on each other and show spatial division of labor. Similar to changing relationship of firms, from vertical to horizontal, relationship between cities changes from in a hierarchical to more collaborative way. Excellent cases can be found in inter-city relationship in Silicon Valley, inter-region relationship in Third Italy region and an industrial belt in Jura, Switzland. In these metropolitan regions we can see high level of specialization and spatial division of labor. These characteristics result in regional competitiveness in end.

3. Governance

Various types of governance can be found in many different socioeconomic environment. Following Rhodes(1996), governance includes four factors such as a general activity of ruling and its process, managing rules and regulation, ruling persons with commitment, and governing method and system. On the other hand, Pierre and Peters(2000) explains governance as a type of dynamic relationship between government and society. Three types of governance are pluralism, corporatism, corporate pluralism.

Despite these various concepts of governance in theory, it provides a common understanding that governance is a new form of government meeting current social demands of collaboration and citizen participation. Increasing complexity, openingness and professionality in the current knowledge and information society created crisis in public ruling and government. A new management system of governance should provide more collaborative and participatory way of ruling by state, market and civil society.

Benefits of governance for facilitating network and collaboration between local governments are abundant (Cooke, 2001). If they have related industry, benefits are even greater. Causes of benefit are explained as follows.

First, well-established governance system reduce transaction costs of production. Reduction of costs in physical, informational and human resource transaction appears more significant since it allow firms to have more flexible system of production. A good example is collaboration between city which is specialized in mechanical engineering industry and another in automobile industry. Their network and collaboration at local government level can encourage firms have forward and backward network with other firms.

Second, successful governance will produce scale of economies and synergy effect which local government cannot create for itself. For example, if neighboring local governments collaborate each other, they can attract foreign investment firms more successfully and have more financial subsidy from national government.

Third, local governments can save their funds through collaboration by preventing overlapped investment in the same area. They can have maximum output of policy implementation by investing in cooperation in such projects as airport, seaport and highway.

Fourth, they can have synergy of innovation through collaboration. This means local government can utilize their limited resources in a more optimum level by encouraging close relationship between local universities, R&D institutes and professionals.

Fifth, using a cluster as a strategy for collaborative marketing, it can also build their region as a center for global trade. By using an image of the cluster in marketing local products, the cluster can grow as an hub of global market.

In sum, metropolitan-wide governance facilitate local governments maximize their benefit of agglomeration. In new flexible system of production, governance will result in competitive advantage of locality in global economy.

Ⅲ. Types of Metropolitan-wide Governance in Local Economic Development

1. Four Types of Metropolitan-wide Governance

Although several cases of industrial cluster covers their geographic areas in more than one local government, there are few successful cases to have an effective and practical industrial support system for governing metropolitan-wide industrial cluster. This section illustrates a few of successful cases of building metropolitan-wide industrial support system for regional economic development. Based on their purpose of establishment, four different types of cases can be provided.

1) Case to Build a Metropolitan-wide Economic Development Agency

By building a regional development agency, we can achieve a scale of economy in economic development. This metropolitan-wide agency can be established by voluntary participation of local governments or enforcement by central government. Of various functions of regional development agency, most success stories are mainly in attraction of foreign investment.

The most successful case of regional development agency can be found in Great Britain. There are eight RDAs in England. In addition, Wales, Northern Island and Scottland have their own RDAs. Scottish Development International is a success case of regional development agency. Other successful cases are found in Wales, Northern Island.

During 1970s and 80s unemployment rate of Scottland recorded the highest in Europe as their shipbuilding industry declined. British government opened LIS in Scottland and began their support to attract foreign investment. As independent Scottish government was inaugrated, LIS was reformed as Scottish Development International(SDI) in July 1999. While LIS had been funded fully by national government, current SDI is financed by cooperation of local Scottish government and Scottish Enterprise.

Scottish Enterprise is a not for profit regional economic development center created by Scottish government fund for the purpose of supporting business, planning development project and developing human resources. Building globally competitive business environment for Scottland is it goal. They support colleges and other local economic development centers as well as individual entrepreneurs and companies.

Ninety employees of SDI have background of both government and private sector. While former government officials take charge in legal services and affairs related with government, officials with private sector background are specialized in business consulting and attracting foreign investment. SDI has its sub-centers in ten Asian cities including Seoul and several other North American, European and African cities.

Attracting foreign investment is a major mission of SDI. They advertize Scottland as the best place for foreign investment and provide full package of service for building a firm and producing and marketing products. They refer various government support programs to investors including subsidy for employment and training of employees, rent subsidy and low-interest government loans. SDI has a special project management team to take charge in the mission of service provision and evaluation. In recent, SDI expanded its role from investment attraction to export and marketing which STI used to take charge in.

A report shows 1,200 foreign firms were located in Scottland in 2001 and they employed a quarter of workforce in manufacturing sector in scottland. During last 30 years, Scottland has grown as a European center of semi-conductor, computer optic electronics industry. They occupy 2/3 of production of semi-conductor industry of Great Britain and 12-15% of Europe. The largest semi-conductor manufacturer in Europe has been located in Scottland.

2) Case of Cooperative Investment of Neighboring Local Governments To Build an Industrial and R&D Complex

While most industrial clusters has grown in nature by market forces, there are a few of cases of cluster built on purpose by cooperation of neighboring local governments. A well-known case of metropolitan-wide cluster built by local government is Research Triangle Park of North Carolina in USA. This R&D park has been constructed in the middle of three university towns, Raleigh, Durham and Chapel Hill to capitalize university research and attract foreign firms.

Kansai Science City of Japan is another case of artificially build metropolitan-wide cluster. Benchmarking Research Triangle Park, three local governments in Kansai region of Japan, including Osaka, Kyoto and Nara, cooperated in constructing a new town of culture, Education and Research located in the middle of them. A concept of this new town was originally designed and planned  by local universities. In 1978, Mr. Okuda of a former president of Kyoto University organized and led a voluntary research team to make a master plan for metropolitan-wide Kansai Science City. They hoped this science city of knowledge and culture makes Kansai region more competitive. Similar to Tskuba Science City in Toyko metropolitan area, they want to build the second science city in their region.

In in the middle of 1980s, Japanese government made a master plan for redevelopment of Kinki region which included a plan for feasibility research on the concept of Kansai Science City. Soon after the study, government legislated a special law for stimulating construction of Kansai Science City in 1987. Relying on this legislation, local governments of Kyoto, Osaka and Nara made their own plans to start construction. A zone of Culture and Academy Research was built first, followed by Keihanna Plaza which accommodates high-tech research center, college and cultural exchange facilities.

Construction of Kansai Science City has been orchestrated by the Foundation of Kansai Research Institute which was established in 1985. Three local governments of Kyoto, Osaka and Nara funded together in this institute and cooperate in various things as well as construction.

This institute is operated by interests from basic fund of 500 million yen and other available funds. They also have tax benefits from government. This institute is defined as "The Special, Public Benefit-Promoting Corporation" by the Corporation Tax Law. Under the law, the corporation can compensate for the deficit with their private donations.

The foundation of the Kansai Research Institute based on the unified cooperation of industry, academia, and government is planning and promoting the construction of Kansa Science City in  such a way as to make it a city fitting to be a center of culture, science and research. With the coordination of activities among people from each field of endeavor as an impetus, they intend to contribute to the development of not only nation's but the world's cultural and scientific research. Main activities of the institute are: first, carrying out surveys, research and proposals related to the construction of Kansai Science City; second, planning and coordination of the construction of Kansai Science City; third, promoting the location of various facilities, such as the cultural and scientific research facilities; fourth, offering of various information.

Despite its great vision at the beginning, achievement of the institute hereto couldn't reach to the goal. Development is very slow nowadays in particular. Major achievements include the construction of Keihanna Plaza and International Advanced Research Center and attraction and agglomeration of colleges and research institutes such as Nara Graduate College of Science and Technology. Even though not being proceeded in time as expected, basic urban form and structure has appeared with some built urban infrastructure and housing.

3) Case of Not-for-Profit Corporation to Provide Metropolitan-wide Economic Data and Development Plan

While firms and public support agencies in a cluster need metropolitan-wide economic data, it is difficult to have such a data since local governments usually produce data in their own territory. Without such metropolitan-wide economic data and index, they have little chance to provide effective and comprehensive plan for cluster development.

Joint Venture Silicon Valley Network is a good example of metropolitan-wide economic development corporation which creates economic data and development plan for Silicon Valley region. Joint Venture is a voluntarily organized not-for-profit agency.

A goal of this organization is to make Silicon Valley the most competitive industrial cluster in the world. Four objectives are mention as follows: first, increase in productivity and value through innovative economy; environmental preservation for high quality of life; third, network of value and opportunity; fourth, solving a problem in a collaborative way.

Areas of survey and research of Joint Venture are as follows:

- Innovative Economy : Next Silicon Valley, Regional Economic Strategic Leadership Team, Tax Policy Group, Economic Development Roundtable

- Livable Environment : Main Street Silicon Valley, Photo Simulations

- Inclusive Society : Youth & Workforce, Digital Divide, Children's Readiness for Kindergarten

- Regional Stewardship : Index of Silicon Valley, Vision 2010, Harwood Project

In their organization, Joint Venture has a board of directors at the top and several group of staff below. A Board of Directors as a top decision maker is composed of 20 members from company, government, education, and civil agency. Acting staffs are one full-time CEO, two part-time deputy officers and section chiefs, officials and consultants.

As a not-for-profit agency, Joint Venture depends its funds on donation from firms, local government, professional association, labor union, foundation and individual donor. So far, the highest amount of donation came form four firms and agencies, like Sun Micro System, James Irvine Foundation and other two firms. Each of them has donated more than fifty thousand dollars every year. Firms the next bracket, donate amount 25,000 through 50,000 dollars every year. The third group of six companies donate 10,000 through 25,000 dollars. County Government of San Mateo, 21 city governments and 100 firms belong to a group of small donors.

Important activities of Joint Venture include surveying data and making statistics of Silicon Valley region, writing a report of comparative research on high-tech industrial clusters, making a development strategy for Silicon Valley and publishing newsletter of Silicon Valley.

In recent, Joint Venture Silicon Valley Network is marked as the most successful not-for-profit economic development corporation in USA and receive trust from employees, firms and government in Silicon Valley. They organized several economic development forum with professionals and ordinary people, and provide a plan based on an objective survey, data analysis and diagnosis of regional economy. This success story of Joint Venture stimulates further donation from outside

4) Case of Center for Metropolitan-wide Internet Network and Portal Service

As firm's demand for new technology and information increases, internet service becomes more favored. Internet works as a means for firms to connect them with other firms service agencies in the world as well as in locality. For firms, universities and R&D institutes located in a cluster, internet becomes a significant mediator of their network.

Responding to rising internet service, we see growing numbers of not-for-profit internet service agency in a metropolitan-wide industrial cluster. Real Service Center in the Third Italy region and Silicon Valley Online in Silicon Valley region are good examples of such an agency.

The Real Service Center has been installed by both public and private support to serve firms in the metropolitan-wide Third Italy region. In addition to subsidy from state government of Emilia-Romagna, this non-profit agency received funds from private firms and individuals. Since centers are located in various specialized industrial districts to provide immediate service needs of firms, we call them "Real Service Center."

Service programs of every center in the Third Italy region are different from services of other centers such as financial aid and infrastructure building. For instance, CITER built in Carpi by ERVET in Emilia-Romagna is specialized in the services of marketing and technology transfer of textile industry. Other specialized centers in the region are CERCAL, CESMA, DEMOCENTER, CENTRO CERANICO, and QUASCO. Besides these specialized center, ASTER and CERMET provide services to the firms in all industrial sector.

SPRINT(Sistema Prato Innovazionni Technologiche) in Prato district of Tuscany region is another example in Italy to support collaboration and innovation between firms and other support agencies. SPRINT which is supported by Italian ENEA, private information technology development agency of RESEAU and the Association of Craftsman, provides services for the firms in wools and textile area in Prato.

These non-profit agencies aim to build communication network of firms in cluster. Using personal computers and other communication subsidiaries, professional coordinators, banks, local governments and labor unions in the locality, they all participate in an internet network of communication. Stimulating collaboration of all economic actors in the region, this agency invigorate innovation and spread learning effects.

SPRINT system has been evaluated as being very successful in lowering transaction costs of firms in Prato district by spurring them to exchange their information and use a data bank of internet system. In practice, SPRINT system activated firms to achieve information of how much and how fast their contract firms can supply necessary parts and other services in immediate and achievable way.

This success was not expected at the beginning. Having worried about spread of their secret information, firms were reluctant to participate in the internet network . This problem has been solved as firms find a fact that their internet network can provide valuable information to them and help them keep valuable network with other firms. SPRINT strengthened a contract chain of firms in Prato to be like a neuron system and worked as a highly effective policy tool for innovation. If we assume this program succeed in future, it is expected that productivity of local economy will rise to a great extent.

A similar case in USA is Silicon Valley Online , an internet portal site for firms in Silicon Valley. The only difference in these two programs is that while SPRINT is managed by government, Silicon Valley Online is operated by a private corporation.

Silicon Valley Online(http://www.silvalonline.com) is one of many kinds of internet service agencies which help firms to advertize and show their location on a GIS map. They seek profit by charging their services and selling internet sites for advertizement. Since Silicon Valley is a hugh valley rather than a small alley, it is not an easy task to find a location of the firm without help.

Despite many advantages created by Silicon Valley Online, commercialization of services for making profit has not been very successful. It has been found that an internet portal site of Silicon Valley Online closed in recent due to financial crisis. In contrast to Silicon Valley Online, the success of SPRINT in Prato of the Third Italy region indicates proper intervention and  some support from government in internet potal service is necessary.

2. Policy Implication

The above types of governance for metropolitan-wide economic development give policy implication to us in the Dongnam region.

First of all, experiences of other cluster cases in foreign countries suggest a lesson that collaboration between local governments work more effectively than enforced merge or incorporation of participating agencies. In other words, competition as well as collaboration among various local government can guarantee market efficiency. It has been argued that there are no precedent cases of unanimous decision of local governments in making a metropolitan-wide economic development plan. Enforced agreement between participating governments will produce conflict later.

Second, priority of metropolitan-wide economic development should be on attraction of outside firms and creation of new firms. Increasing number of firms is a prerequisite of agglomeration of a specific industry and strengthened their network.

Third, metropolitan-wide industrial clusters in Korea, including capital region and Dongnam region, need research centers to create regional data and development plan.

Fourth, neighboring local governments should collaborate to build infrastructure of industrial complex and roads in their metropolis. Well developed infrastructure is more effective than R&D institute in attracting firms.

Fifth, building an internet hub of firms-universities-research institutes is essential. This innovative cyber community can start with members in the region and gradually grows to the international scope. To make a successful internet community, we should  attract both private and public funds. Solely depending on subsidy from private sector, an internet service agency might be in danger of financial crisis since social benefits of internet community are not easily compensated in market. Financial crisis of Silicon Valley Online Case illustrates this lesson.

At last, for the metropolitan-wide economic development plan to be successful, political and financial support of national government is also necessary. Different from local government in USA or other European nations, local government in Korea have little experience of collaboration and financing for regional economic development. Therefore, national intervention in metropolitan-wide development is critical at the beginning.

Ⅳ. Actual Conditions of Industrial Clusters in Dongnam Region

1. Industrial Agglomeration and Specialization

During the Korean industrialization period of the last 40 years since 1960's, a variety of industrial clusters have been well established on a large scale centering around the several inter-linked and networked metropolitan areas in the Dongnam region. As shown in Tables 1 and 2, the employment ratios of manufacturing and machine-metal industry in the Dongnam region are still higher than the national average. This indicates that the Dongnam region is specialized in manufacturing and especially machine-metal industry.

As shown in Table 2, the ratio of machine and metal industry over manufacturing in the Dongnam region has been growing form 52.9% in 1999 to 60.7% in 2005, although the ratio of manufacturing over all industries has decreased from 24.8% in 1999 to 22.6% in 2005. In the Dongnam region, Ulsan and Gyungnam show the remarkable specialization ratio of machine and metal industry in the manufacturing sector as 72.2% and 63.6% in 2005, respectively. This phenomenon has been continuously strengthened since last several years. Even in Busan, the employment ratio of machine and metal industry over manufacturing was only 35.8% in 1999, but it sharply grew to 45.7% in 2005. This means that machine and metal industry is the specialized and growth-driving industry in Dongnam region over all.

<Table 1> Trend of Regional Employment Ratio	(unit: %)

classification	All Industries			manufacturing			machine-metal
	1999	2002	2005	1999	2002	2005	1999	2002	2005
Nation	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Yeongnam	27.8	27.5	26.9	35.8	34.4	33.5	47.1	46.4	46.7
Dongnam	16.1	16.1	15.7	22.9	21.9	21.4	35.2	34.7	34.6
Busan	7.7	7.7	7.1	7.4	6.6	5.8	7.7	7.5	7.1
Ulsan	2.0	2.1	2.2	5.1	4.9	4.9	9.9	9.6	9.4
Gyungnam	6.4	6.3	6.4	10.4	10.4	10.7	17.6	17.6	18.1
Daegu-Gyeongbuk	11.7	11.4	11.2	12.9	12.5	12.1	11.9	11.7	12.1
Daegu	5.2	5.2	5.2	5.0	4.8	4.2	5.5	5.3	5.1
Gyeongbuk	6.5	6.2	6.0	7.9	7.7	7.9	6.4	6.4	7.0

Source: Korea National Statistical Office(each year)

<Table 2> Employment Ratio of Manufacturing and Machine-Metal Industry    (unit: %)

classification	manufacturing/all industries			machine-metal/manufacturing
	1999	2002	2005	1999	2002	2005
Nation	20.3	19.1	18.5	34.5	35.4	37.7
Yeongnam	23.1	22.5	21.6	45.9	47.4	52.4
Dongnam	24.8	24.2	22.6	52.9	55.5	60.7
Busan	23.5	21.4	18.3	35.8	40.1	45.7
Ulsan	38.0	38.7	37.3	67.3	68.9	72.2
Gyungnam	22.0	22.8	22.6	58.1	58.9	63.6
Daegu-Gyeongbuk	20.7	20.1	20.2	33.4	33.2	37.5
Daegu	26.1	23.6	21.3	37.4	39.2	44.9
Gyeongbuk	16.4	17.1	19.1	27.7	29.5	33.6

Source: Korea National Statistical Office(each year)

The ratio of machine and metal industry over manufacturing in the Daegu-Gyunbuk region is shown below the national average. However, it is worth noticing that the regional employment share in machine and metal industry is just a little growing from 11.9% in 1999 to 12.1% in 2005, as shown in Table 3. It is due to the spread of the machine and metal industry from the Dongnam region to the south-east areas of the Daegu-Gyeongbuk region. Since the late 90's, a number of auto-related plants have been located in the border line of Ulsan and Gyungju city(located in the south-east area of the Gyeongbuk region) and various machine-metal plants related to auto industry have been established along the Ulsan-Gyungju corridor(a national road number 7) and along the Ulsan-Daegu-Gumi corridor(a national highway number 1). This indicates that the machine and metal industry is well clustered in the Dongnam region and the industrial cluster is extended to the south-east area of the Gyeongbuk region.

<Table 3> Regional Share of Employment of Machine-Metal Industry by Sectors (unit: %)

classification	machine- metal		raw metal		fabricated metal		other machine/ equipment mfg		auto-trailer		other transportation equipment
	1999	2005	1999	2005	1999	2005	1999	2005	1999	2005	1999	2005
Nation	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Yeongnam	47.1	46.7	53.2	51.1	38.5	39.8	37.6	37.2	46.8	45.2	87.9	88.5
Dongnam	35.2	34.6	27.9	27.7	27.8	26.0	28.4	27.7	33.1	33.3	86.3	87.4
Busan	7.7	7.1	10.1	9.8	9.5	8.3	8.2	7.1	4.0	4.1	9.6	7.2
Ulsan	9.9	9.4	5.5	4.5	3.3	2.7	1.7	1.7	18.5	19.0	35.4	34.0
Gyungnam	17.6	18.1	12.3	13.4	15.0	15.0	18.5	18.9	10.6	10.2	41.3	46.2
Daegu- Gyeongbuk	11.9	12.1	25.3	23.4	10.7	13.8	9.2	9.5	13.7	11.9	1.6	1.1
Daegu	5.5	5.1	3.6	2.8	5.5	7.3	5.5	4.9	7.8	5.4	0.8	0.3
Gyeongbuk	6.4	7.0	21.7	20.6	5.2	6.5	3.7	4.6	5.9	6.5	0.8	0.8

Source: Korea National Statistical Office(each year)

As shown in Table 3, the employment shares of machine-metal industry slightly decreased in Dongnam region and Yeongnam region as whole during the period of 1999 and 2005, while those of fabricated metal and shipbuliding industry(other transportation equipment) increased during the same period. This is due to a boom of shipbuilding industry. Kyungnam region has been especially taken advantage of the industrial boom of the shipbuilding industry. In Yeongnam region, each sub-region has its own specialized sector, but these sectors are tightly linked each other, as shown in Table 3 and 4.

<Table 4> Employment Ratio of Sectors within Machine-Metal Industry         (unit: %)

classification	raw metal		fabricated metal		other machine/ equipment mfg		auto-trailer		other transportation equipment
	1999	2005	1999	2005	1999	2005	1999	2005	1999	2005
Nation	12.1	10.7	19.9	23.3	29.6	30.3	22.6	23.4	10.9	9.9
Yeongnam	13.6	11.8	16.3	19.9	23.7	24.1	22.5	22.6	20.4	18.7
Dongnam	9.6	8.6	15.7	17.5	23.9	24.2	21.3	22.5	26.7	25.0
Busan	15.8	14.9	24.6	27.4	31.5	30.4	11.6	13.5	13.6	10.0
Ulsan	6.7	5.8	6.7	6.6	5.0	5.3	42.4	47.1	39.0	35.6
Gyungnam	8.5	7.9	17.0	19.3	31.2	31.6	13.6	13.2	25.5	25.3
Daegu-Gyeongbuk	25.7	20.9	18.0	26.8	23.0	23.7	26.1	23.0	1.5	0.9
Daegu	7.8	6.0	19.8	33.9	29.7	29.1	32.2	25.0	1.6	0.6
Gyeongbuk	41.0	31.6	16.3	21.7	17.3	19.8	20.9	21.6	1.4	1.1

Source: Korea National Statistical Office(each year)

2. Industrial Clusters and Inter-Urban Networks in Dongnam Region

The machine and metal industry in the Dongnam region is spatially agglomerated alongside highways and main industrial roads. As shown in Table 5, there are 12 municipalities with more than 2,000 empolyees of the machine and metal industry in the Dongnam region and 8 municipalities in the south-east area of the Daegu-Gyeongbuk region. These municipalities are networked with main roads. Thus, the machine and metal industry in the Dongnam region is spatially clustered in the main cities such as Busan, Ulsan and Changwon and tends to be spreaded to adjacent networked municipalities alongside main roads.

Busan, Ulsan, and Changwon with more than 50,000 employees in the machine and metal industry have roles of the main regional centers of the industrial cluster in Dongnam region. While Gimhae and Yangsan is strongly inter-connected with Busan; Masan, Jinhae, and Haman is basically networked with Changwon; Ulsan tends to formulate a self-completed industrial cluster but has relevant important industrial relations with Yangsan, Gyeongju and Pohang, the three major regional centers in Dongnam region are also inter-linked with each other. Jinju and Sacheon area, which is specialized in aero-space industry, and Geoje-Tongyong area, which is specialized in shipbuilding industry, tend to be relatively loosely related with the main regional centers. In the Gyeongbuk region, the machine and metal clusters are accumulated in several municipalities connected industrially with Daegu playing a role of the major regional industrial center in the Daegu-Gyeongbuk region.

<Table 5> Spatial Distribution of Municipalities with More Than 2,000 Empolyees of Machine and Metal Industry in Dongnam Region and Daegu-Gyeongbuk Region

Number of employees	Dongnam region	Daegu-Gyeongbuk region	Number of municipalities
50,000 - 100,000	Busan, Ulsan, Changwon	Daegu	4
20,000 - 50,000	Gimhae, Geoje	Pohang	3
10,000 - 20,000	Yangsan	Gyeongju	2
5,000 - 10,000	Masan, Jinju, Jinhae, Haman	Gumi, Gyungsan, Chilgok	7
2,000 - 5,000	Tongyong, Sancheon	Youngcheon, Goryung	4

In the Dongnam region and the south-east area of the Gyeongbuk region, there are four sub-regional machine and metal industry clusters and Busan, Ulsan, Changwon, and Daegu play a role of the nodal points and the industrial pivots in each sub-regional cluster. These four nodal cities are inter-linked in a ring-shape connecting major highways. This spatial configuration of the locational accumulation of the machine and metal industry in the Dongnam region and the south-east area of the Gyeongbuk region is analogous to the Landstad in Netherlands with the horse hoof-shaped urban network. Only the difference is that the shape of network in Dongnam and Daegu-Gyeongbuk region, which has some protrusions on the ring, is more complex than that of the Landstad in Netherlands.

As shown in Figure 1, inter-urban traffic in Dongnam region is exactly coincident with the inter-urban industrial network in terms of the machine and metal clusters. The spatial structure of inter-linkages between major industrial cities implies that the industrial network and transportation network are strongly correlated in the region. In order to strengthen the industrial network in the Dongnam region including the area of Daegu and Gyeongbuk region, it is necessary to expand and improve the internal transportation network within the region. Recently, the Busan-Daegu highway has been constructed, and the Busan-Ulsan-Pohang highway is under construction. In addition, it is necessary to build a highway or a well-equipped industrial road in near future to connect Ulsan-Miryang-Changwon. These improved internal traffic flows will play an important role to expand and spread the machine and metal industrial clusters in the region.

<Figure 1> Industrial Clusters and Inter-Urban Networks in Dongnam Region

Source: Kim (2006)

Ⅴ. Establishment of Regional Governance in the Dongnam Economy

Major cities in the Dongnam and Daegu-Gyeongbuk region has not only built a close inter-urban network, but also formulated a large scale of industrial clusters centering on the machine and metal industry. The industrial clusters in the Dongnam and Daegu-Gyeongbuk region are inter-linked over the existing administration boundaries. Thus, for the common benefit of industrial development and cooperation, it is necessary to build a regional governance system among related municipalities in the region. However, there are various conflicting opinions on what kind of regional governance systems are desirable. In this chapter, we  discuss on the direction to establish a desirable regional governance system in the Dongnam region

1. Governance Building Driven by Upper Local Governments

The local government system in Korea is based on the two-tiered system composed of upper and lower local governments. Upper local governments are named as Do or Metropolitan City and lower local governments are similar to municipalities in US.

It is suggested by the Korea Institute for Industrial Economics & Trade(KIET) some years ago that a regional development agency like RDA's in UK should be established to develop and manage regional cooperative policy-making and industrial promotion in the Dongnam region (KIET, 2003). The suggestion is based on the logic of preventing excessive competition and duplicated (or overlapping) investments between adjacent upper local governments in the region. However, it has some risks such as building a new upper-upper government and impeding policy consistency and efficiency of the existing local governments. It is also possible that the central government intervene more intentionally in the local industrial policy-making. In addition, it could bring about some inter-governmental conflicts on location of the agency, inter-governmental competition about resource allocation, and so on. Therefore it seems to be better than functional integration in region through establishing a regional development agency that the existing upper local governments have their own responsibilities to foster industrial clusters in their boundaries through inter-governmental competition as shown in the new industrial areas of the Yangtze delta in China and those in US.

However, it seems to be desirable to establish a regional industrial governance in some particular fields for regional cooperation and arbitration. For example, it is more efficient and effective to strategically attract multi-national corporations and international research institutes, to open up the new foreign markets, and to provide regional infra-structures through regional cooperation than by each individual local government. Therefore it is desirable to establish a regional agency to accomplish duties only in such specific fields and it could not be better if the central government financially supports the agency.

2. Reappraisal on the Spatial Boundary of the Dongnam Economy

The spatial boundary of the Dongnam region has been usually considered to include the administrative boundaries of Busan, Ulsan, and Gyungnam governments. Considering the evolution of the urban and industrial networks, however, the Dongnam economy has been being spreaded to the south-east area of the Daegu-Gyeongbuk region. The local industrial clusters in the municipalities in the Dongnam and Daegu-Gyeongbuk regions are inter-networked alongside of the main highways and industrial roads. In order to accomplish more efficiently the extensive industrial cluster policies, given the current progress of the industrial network, it will be relevant to define the boundary of the Dongnam economy with a more extensive spatial scope appending the south-east area of the Daegu-Gyeongbuk region to the existing Dongnam region. For the extensive regional governance, it is advised to establish a regional governance system in the Dongnam region including Busan, Ulsan, and Gyungnam in the first step, and then to extend the system to the Daegu-Gyeongbuk region. This kind of step-by-step strategy would be more feasible and efficient, given the practical difficulties in inter-governmental cooperation.

3. Orientation to the High Technology-Driven Industrial Clusters

The machine-metal cluster in the extensive Dongnam region may be one of the largest in the world in terms of territorial boundary. However, the cluster over all is still relatively backward in the level of technology, although some fields of the cluster have strengthened technological competitiveness. In order to increase industrial competitiveness in the Dongnam region, it is the core task to establish high technology-driven industrial cluster. For this task, it is necessary to attract foreign and domestic corporations with leading technologies and to accelerate to start up high-tech venture companies so as to promote forward and backward linkage with the existing enterprises in the region. To do this, it is desirable to establish a regional governance system.

4. Support of the central Government on Establishment of Regional Governance

Given financial vulnerability of the local governments, they have difficulties in driving inter-governmental cooperation for regional industrial promotion. Therefore, it is necessary for the cental government to enforce the institutional and financial supports on the establishment of a regional governance system to promote regional cooperation and industrial clusters. Given the regional economic imbalance between the capital region and others in Korea, it is inevitable for the central government to provide institutional and financial supports on the non-capital region. The most efficient and desirable policy measure would be support on the establishment of  regional governance systems to promote regional industrial development.

5. Searching for the Core Functions of the Regional Governance in the Dongnam Region

The industrial clusters in the Dongnam region are composed over the administrative boundaries of the local governments and accumulated with the similar types of closely inter-linked industries. Thus it is necessary and efficient to establish a regional institution for the synthetic industrial support. However, The functions of the institution should be limited to not only the fields with spontaneous cooperation among local governments but also the fields irrelevant to accomplishment of an individual local government, in order to prevent administrative conflicts and overlapping investment between local governments.

If the regional governance system would be established to promote industrial clusters in the Dongnam region, the limited core functions of the regional institution could be considered as follows:

Firstly, one of the most important function of the regional institution is to attract foreign direct investment and high-tech enterprises. An individual local government may accomplish this function by itself, but inter-governmental cooperation will make it more efficient due to the scale economy. This functional organization may be bench-marked from the Wales Development Agency, the Locate in Scotland(LIS), the Alabama Development Office(ADO), and so on.

Secondly, statistical investigation of the regional economy and industrial policy development are another important functions in regional cooperation. Individual local government statistics is not sufficient to make a regional industrial policy because the local economies are too much interweaved in the Dongnam region. Therefore, it is demanded to establish a regional institute to accomplish regional statistical research and economic analysis, and to provide regional policy agendas. This functional organization may be bench-marked from the Joint Venture in Silicon Valley, the ABAG(Association of Bay Area Governments) Data Center, the SCAG(Southern California Association of Governments), and so on. This functional organization may be called "the Dongnam Regional Center for Industrial Statistics and Policy Development." It will be relevant that the 70% of share in financing the center is taken by the central government and the other share is charged by local governments and local enterprises.

Thirdly, It is important to establish an internet portal site to integrate internet networks among enterprises, universities, research institutes, supporting agencies, governments and so on. Given networking and outsourcing are the cores of the flexible network production system, an internet portal site will be one of the most important infra-structure of the information economy. The portal site can be jointly operated with the Dongnam Regional Center for Industrial Statistics and Policy Development just previously mentioned.

Finally, it is necessary to establish a standing committee for regional cooperation to expand inter-governmental common infra-structures and to solve environmental problems in the region. Such a committee will play a role of a mediator to solve the inter-governmental conflicts and of a promoter to speed up regional development.

6. Overcoming the Hindrances to Establishment of the Regional Governance System

There are many obstacles to establish a regional governance system in the Dongnam region. Even in the advanced countries, inter-governmental cooperations are more sluggish than inter-company networks, and a variety of hindrances have been presented in the processes of forming and operating the inter-governmental governance. Therefore, it is necessary to plan strategies to overcome the obstacles to establish a regional governance system as follows:

Firstly, local governments should continuously try to coordinate the different inter-governmental  views and interests. It will be possible only through mutual understandings and negotiation.

Secondly, inter-governmental political conflicts are one of the obstacles to establish a regional cooperation system. Especially, incitement of the local mass media, local exclusivism, and excessive inter-governmental competition will be the most dangerous hindrances to decrease the efficient operation of the regional governance system. In order to overcome such kinds of the problems, it is suggested to build up a regional innovation committee extending the existing local innovation committee. It will lessen the responsibilities imposed on the local political leaders.

Finally, it is desirable that intervention of the central government should be minimal despite its support. The cental government should support to foster the existing local strategic industries without trade-offs of resource allocation between the establishment of the regional governance system and the existing local industrial promotion programs.

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권오혁(權五奕), 서울대 환경대학원에서 도시및지역경제를 전공하여 ‘연구개발활동의 공간적 입지 연구’로 행정학박사학위를 취득하였다. 한국지방행정연구원에서 지역경제팀장을 역임하였으며 현재 부경대 경제학부에서 조교수로 재직하고 있다. 주로 산업입지, 지역경제 분야에 대해 연구하고 있다. 주요 저서로는「한국의 지역전략산업」(공저)(2004), 「세계의 지역혁신체제」(공저)(2004) 등이 있으며 주요 논문으로는 “신지역주의 비판에 대한 반론”(2006), “참여정부의 신지역주의 산업정책에 대한 비판적 고찰”(2005) 등이 있다. 이메일 주소는okwon@pknu.ac.kr임

이우배(李宇培), 한양대학교 도시공학과를 졸업하고 미국 University of Southern California(USC)에서 도시및지역계획학 박사학위를 받았다. (재)경남발전연구원에서 도시지역연구실장을 역임하였으며 현재 인제대학교 경영대학원 행정학과 조교수로 재직하고 있다. 경상남도 도시계획위원회 위원을 맡고 있으며 주요 저서로는「세계적 혁신지역을 간다」(공저)(2006), 「도시 와 인간」(공저)(2005) 등이 있고 주요 논문으로는 “Regional Innovation System Built by Local Agencies (Australian Planner Vol36(1999))와 “Poverty and welfare dependency: the case of Los Angeles in the 1980s (Environment and Planning A vol29(1997))" 등이 있다. 이메일 주소는 wblee@inje.ac.kr임

김재홍(金宰弘), 서울대학교 서양사학과를 졸업하고 미국 Carnegie Mellon University에서 공공정책및도시계획학 박사학위를 받았다. 서울시정개발연구원 초빙책임연구원을 거쳐 현재 울산대학교 행정학과에 재직하고 있다. 영국 University of Oxford에서 방문연구교수를 역임하였으며 울산지역환경기술개발센터의 센터장을 맡기도 하였다. 주요저서로는「울산시민의 환경의식」(2006), 「Residential Location Choice, Mobility and Housing Demand」(2006) 등이 있다. 주요논문으로는 “The Impact of Fuel Price Policy on the Demand for Diesel Passenger Cars in Korea"(2006), "The Intention to Move and Residential Location Choice Behavior"(2006) 등이 있다. 이메일 주소는 hkim@ulsan.ac.kr임