Economic Recovery?

"The South Korean government plans to inject an additional 5 trillion won ($4.7 billion) worth of policy funds this year to jumpstart the slowing economic recovery, the Finance Ministry said Wednesday."

"On Tuesday, the Bank of Korea said Korea was likely to continue to recover modestly, backed by a global economic recovery and ongoing economic policies."

- The Korea Herald

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Why is the "economic recovery" slowing in the first place? Or to ask a more realistic question, is there really a slowing economic recovery? If such an economic recovery exists even though it is slow, it remains a good news. However, this is the reality as a Keynesian economist sees it. I guess an Austrian economist would see it differently. No economic recovery is taking place. What a Keynesian economist sees as the slowing of economic recovery is actually the gradual disappearance of the impact of previous "economic solution" to boost the economy. And since such impact is disappearing, what is needed this time is for more stimulus package to "boost the economy". In reality, this is an act of stopping the market from correcting the economy and instead prolonging the "illusion of growth". The authority can do it as a short-term solution, but its long term impact is far more serious and destructive that may end in a possible humanitarian crisis. The truth is, no economic recovery is happening. We are still in the midst of economic crisis, not only South Korea, but the world. However, governments refuse to accept it, and they are using the only weapon they know to "boost the economy", injecting paper money into the economy through the nations' central banks. 

In South Korea, expect the weakening of won and the strengthening of export industry in the coming months. This is what they call "speeding" the economic recovery. To my knowledge, Austrians call it "joining the race to the bottom". 

The Role of Christianity in the National Development of South Korea

Following three forum threads and reading two articles from Ludwig von Mises Institute, I came up with different answers explaining the phenomenal growth of South Korea’s economy. The answers I received are due to government leadership, collaboration between the government and the chaebols, intervention of the US, an ongoing experiment between socialism and free market, and the chaebols using the government.

South Korea and Taiwan

Post War South Korean Economy

North Korea: A land of milk and honey

In Korea, Bureaucrats lead the technology charge

Coming from theological education, I am not satisfied with the above answers. I am looking for a connection between the growth of Christianity in South Korea and her economic development. And I find Kirsteen Kim’s paper, “Christianity and modernization in twentieth-century Korea: perspectives on new religious movements and the revitalization of society” helpful. The paper primarily focused on Protestant Christianity’s impact on Korea’s national development. And national development is incomprehensible apart from a robust national economy.

Kim is critical of developmental theory that left out the significant role of religion. Basing on the works of Scott M. Thomas, Kim claims that religion actually played a vital role in social development. The assumptions therefore of developmental theories leaving out religion are inaccurate. Those theories stigmatize religion as primitive, confined in institutional concepts and beliefs, and a matter of personal preference. Those theories fail to see the public importance of religion as a force to create change in the lives of people, the economy, and the entire society.

Kim identifies ten ways Protestant Christianity has impacted the country:

• Holistic view of life
• Developmental approach
• Transforming socio-cultural practices
• Correlation between Christianity and independence movement
• Church gatherings as avenues for resistance
• Witnessing through various social services.
• Influence of the corporate world in the way church leaders manage church ministries
• The development of Minjung theology
• Reunification of two Koreas as a concrete application of biblical Jubilee.
• Global mission

Protestantism shares the holistic view of life with Catholicism. Both of them offered vision of a better life than the one given by both Confucianism and Buddhism.  This vision of a better life goes beyond “spiritual’ concerns such as the salvation of soul. Christianity during its early stage in South Korea was understood as a force for change affecting family and the society.  It has power to solve political and economic problems. It is actually understood as an important component in nationalism. It even serves as an economic motivation for it provides a way to protect the living standard of the people and Christian connection offers diverse economic advantages.

The concrete application of establishing the kingdom of God through developmental approach is the second way Christianity impacted South Korea. Early Protestant missionaries established schools, hospitals, and churches. Through the influence of Nevius method, church leadership was nationalized and democratized. Consequently, Korean Christians were quick to imitate the example of Protestant missionaries resulting to the multiplication of schools, hospitals, and churches throughout the country. In fact, as of 2002, among the top five universities in the country, the roots of three of them could be traced in Christian tradition.

Socio-cultural practices especially related to gender and age underwent change through the influence of Christianity. Superstitious beliefs collapsed, domestic abuses were exposed, and Korean Christians developed a “social consciousness” resulting from emphasis on education.

The role of Christian leaders and churches in the nationalist and independence movement was the fourth way Christianity influenced the development of South Korea. Historically, Christians suffered a lot for their active participation in this independence movement.

Due to Japanese suppression, early Korean Christians found prayer and revival meetings as ways to resist Japanese cultural imposition. However, when the colonial government made Shinto worship compulsory in schools, resistance became public, which resulted to persecution, imprisonment, and death. Church buildings were even closed down.

Church ministries in South Korea have been managed like the corporate world. They invest on impressive buildings and cutting edge technology. Church leaders never criticize capitalism. In fact, the growth of Korean churches is closely associated with the growth of businesses.

Minjung theology consists of three threads: Catholicism’s liberation theology, insights of folk history movement of the 1960s, and re-reading of the Bible from economic and political perspectives. Minjung theologians played a significant role in the overthrow of Korea’s military government. They displayed openness to collaborate with other groups advocating the protection of human rights.

I find that there is no need for further elaboration on the sixth and the last two influences of Christianity – witnessing through various social services, reunification of North and South Korea, and missionary work around the world.

Based on Kim’s paper, it is now clear that Christianity indeed played a significant role in the national development of South Korea. And part of that development, I suggest that the economic boom of the country could never be explained completely apart from the religious influence coming from Christianity.

Source: Kirsteen Kim 

Economic Prosperity of South Korea

In this post, I want to summarize the key ideas from two forum threads and two articles that provided answer to the forum question, “Why is South Korea so successful?”  I think the attribution of the primary cause to the “meteoric rise” of the economy of South Korea is the central contention in this question. Is the economic success of South Korea really the product of government’s intervention? Or is it the work of the free market?

Collaboration between the Government and the Chaebol

The initiator of the first forum thread acknowledged the limitation of his knowledge concerning the history and status of Korean economy. He is so concerned about the question for refuting the mainstream story about Korea’s economic miracle due to government intervention would provide a strong defense for the free market.

The first responder identified the vital role of the ties between the “chaebol” and the government explaining Korea’s economic success. Such ties started during the regime of Park Chung Hee (1961-1979) where the government recruited the “chaebol” to boost the national economy through industrialization and giving priority to export industry. The government is capable to provide the necessary huge funds for the “chaebol” to accomplish these economic ends through the nationalization of banks of Korea. The “chaebol” enjoyed special privileges from the government by receiving huge loans with low interest rates. This deprived medium-sized enterprises to avail of necessary capital. All of this was made possible by inflating the money supply.

However, the dominance of the “chaebol” was greatly affected due to two critical changes – the end of Park’s regime and the financial crisis in the late 1990s. South Korea now is looking for economic alternative to “chaebol” system since 1999.

Result of US Intervention on Korea’s Economy

The second thread deals with a difficult subject. It is about the impact of US intervention on Korean economy. One thread contributor recognized the difficulty of the subject for dealing with speculation and alternative history are difficult to avoid.

The dominant sentiment in the thread is that simply describing South Korean economic explosion as the total outcome of US intervention is a distortion of the picture. This is because the story of North Korea is intentionally left out. It appears to me that the picture closer to reality is that US intervention actually results both to economic prosperity of South Korea and economic poverty of North Korea. So basing on this second thread, the answer to our central question about the economic development of South Korea is closely connected to US intervention.

An Experimental Period

The third link is more focused on the situation in North Korea. However, I choose to limit my comment on the data concerning South Korea.

The writer, Tim Swanson, identifies that the situation in South Korea is still under experimental period between two ideological forces – pure socialism and relatively free market. Historically, South Korea “flirted” with dictators, but still the free market has survived for five decades. The economic miracle of South Korea is a product of neither the ideal libertarianism nor pure capitalism. If my understanding is correct, the writer is saying that Korea’s economic miracle is an outcome of the combination of these two forces. Moreover, the writer predicts that the free market will triumph over socialism in the end.

Chaebol Using the Government

The fourth answer came from George Reisman. He refused to buy the mainstream story about the economic success of South Korea attributed to government intervention. To him, accepting the mainstream story is tantamount to biblical miracles like raising the dead person to life or the virgin birth. In his mind, the New York Times actually reported the result of a defiance of an economic law, which is impossible to happen. Instead of uncritically accepting such misleading report, Reisman offered a different story. He saw the real cause of the success of South Korea’s economy from the fact that big businesses used the government for their own ends.

For Reisman, the story of big businesses using the government is not new. This has been happening in the US and similar scenario is also true in South Korea; the “chaebol” dictates the decision of the government. Two quotations from Reisman’s article support this assertion:

“The same principle of businessmen using the government for their own ends undoubtedly applies …to every other case of alleged government responsibility for the economic success of a country.”

“It’s sign of the corruption of our culture that today, businessmen feel the need to hide behind the mantle of corrupt ideology and pretend that what springs from their fundamentally life-giving self-interest comes instead from the government, the agency that can give only destruction and death.”

Answering our central question about the economic prosperity of South Korea, we came up with four different but interrelated answers. The chaebol’s collaboration with the government, American intervention, an outcome of economic experiment between socialism and the free market, and chaebol using the government are the answers we gathered from the two forum threads and two articles taken from Ludwig von Mises Institute.

South Korea and Austrian Economics

It’s a frustrating day! I wrote a draft yesterday for my next post, but as I checked my documents today, I could not find it. You know the experience of rewriting again a paper that took you some time to organize your thoughts. There is no certainty that I could come up with the same form I did yesterday. I simply decided to start anew.

I remember writing yesterday that I decided not to write further about the remaining four news articles from The Korea Herald, which I stated in my earlier post due to irrelevant content. Instead, I replaced them with three links related to “South Korea, Interventionism, and Austrian Economics”. I dropped “It’s time for Japan and South Korea to go nuclear.”

The first link directs to a Spanish blogger and investor who identified himself as jrv. His article’s title is Thoughts about Austrian Economists in the Present Context and Investing. Jrv’s profile and portfolio are impressive.  I could relate to his learning experience, but his investment successes are still very far from me.  I think the most relevant part in his article for my research is the sixth paragraph where he describes the increasing influence of socialism on many countries especially in the US. He excluded South Korea from that tendency. This is his personal opinion, which awaits confirmation from other more reliable sources.

The article of Lawrence W. Reed appears to me a confirmation of the opinion of the above blogger. It is about “Good News from Korea, China, and Vietnam.” I will just focus on Korea where Reed reports about the progress of Austrian way of thinking in South Korea.

Though written on the same year that global economic crisis took place, I really consider it good news to know that an institution was established in the peninsula to advance the cause of the free market. The establishment of Center for Free Enterprise would serve as a stronghold to frustrate South Korea’s socialistic tendency.

I envy South Korea for having free market thinkers like Dr. Byoung-Ho Gong and Dr. Chung-Ho Kim. Dr. Gong is the founder of CFE and Dr. Kim is the current president. They performed great service both for the future of liberty and their country by translating the books of classic Austrian economists into their language. How I wish that such academic labor would be emulated in our country, the Philippines.

The third link is actually a forum thread. It attempts to answer the question about South Korea’s economic prosperity. The first response contains five additional links. I already wrote my summary on the first article. My next writing task will focus on the four remaining links.

It is not the free market, but interventionism

“Why is South Korea so successful?” is the title of the forum thread from Ludwig von Mises Institute. The original poster finds it hard to explain the economic success of South Korea from Austrian perspective. John James replied with five links. The first link is about “Asian Tiger or Asian Kitten?” I clicked the link and found what I have been looking for, an explanation closer to reality than the one reported in The Korea Herald yesterday blaming the free market for the country’s economic woes.

There I found the typical Austrian diagnosis that it is actually the government’s intervention of the free market that account for Korea’s present economic situation. Though the article was written prior to 2008 crisis and referring to financial crisis in the late 90’s, I personally think that nothing substantially has changed since then.

Such intervention is seen through the connection between the government and the “chaebols” (Korean Big Business conglomerates), through the control over the bank of Korea, the role of subsidies, and the fact that every government is a chaebol in itself. The government intervention shows through increasing regulation and artificial low interest rates resulting to misallocation of capital. The continuous printing of money by the Bank of Korea caused imbalances in economic growth, structural corruption, and eventually to the collapse of national economy. Government subsidies played a crucial role in the reallocation of funds and protection of the chaebols from outside competition. An alarming example of such reallocation is related to the $24 billion worth of tax revenues designated for broadband projects. Such reallocation would have future repercussions that are yet to be seen.

Here are two relevant quotations from the article about the connection of the government with the chaebols:

“Furthermore, the South Korean government, which itself played an integral part in the Asian financial collapse of 1997–98 still has a heavy hand in innovation by massively subsidizing and favoring the products and services developed by chaebols such as Samsung, LG, SK Telecom, and Hyundai.”

“State-subsidized Daewoo was involved with such poor financial dealings and shoddy business practices that they ultimately went bankrupt; and both Samsung and Hyundai are under fire for bribing government officials for government contracts.”

Free Market’s Failure Justifies Welfare

Reading the fourth article from The Korea Herald issued as of November 6, 2012 convinced me about the influence of mainstream social theme about the alleged “crimes” of free market. The writer identified two among those crimes. These are the increasing socio-economic inequity and the collapse of traditional family values that left both the children and the elderly unattended.  Due to free market failure as the mainstream rhetoric wants us to believe, the entry of government welfare is now justified. And this serves as the rallying point of the three presidential candidates in South Korea: Park Geun-hye, Moon Jae-in, and Ahn Cheol-soo.

Among the three candidates, it was reported that Moon Jae-in is the boldest in his welfare platform and dreams to be “ ‘the first president of South Korea as a welfare state’ ”.  Ahn Cheol-soo’s source of financing for his “reliable welfare” program is commendable. It is similar to the monetary policies advocated by Ron Paul, the Tea Party US Congressman who is passionate to spread the Austrian economics way of thinking. Ahn’s “cut government spending” and “tax exemption measures” are really great ideas that will somehow help ease the existing economic situation in the country due to global crisis.

Listening to the voice of Austrian economists, a different diagnosis would come out concerning the alleged crimes of the free market in South Korea. They identify government’s intervention of the free-market as the primary culprit. Mainstream media and the academic community feed the public with such wrong notion for the government’s interventionist policy to escape public attention.

This fourth article really caused me to think hard. So I searched for other sites to learn how they look at the situation in South Korea. I typed in the search browser two lines of thoughts: South Korea and welfare state and South Korea and Austrian economics. And among numerous links, I chose four:

• Thoughts about Austrian Economists in the Present Context and Investing
• Good News from Korea, China, and Vietnam
• It’s time for Japan and South Korea to go Nuclear
• Why is South Korea so Successful?

So in addition to the writing task I mentioned in the previous article, I add the above four. I am also thinking about reflecting on the economic situation in my country, the Philippines.