[Editor's View]The future of a new nation

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[Editor's View]The future of a new nation

The hermit kingdom signed its own death warrant this week. With the completion of the free trade agreement, the old Korea was killed. There may be those who say some remnants remain, but they are just looking at a corpse. A butterfly does not waste time studying its pupa after it hatches. It spreads its wings and flies. The new Korea that was born on Sunday, at the Grand Hyatt in Seoul, must do the same.
The question is whether the country can rise to the challenge. It is instructive that the deal was signed in a hotel that is a famous American brand. The Korean economy will see an enormous growth in American influences as a consequence of the FTA. This week Starbucks, a coffee company born in Seattle, opened its 200th branch in Korea. A beverage that was almost unknown here 20 years ago is now a national institution.
This is what free trade does; it changes nations, just as surely as it enriches or impoverishes them.
Korea has long resisted opening its economy. Its protectionist tendencies run deep. Even with this agreement, vital industries in the service sector, such as education, were excluded. And there is already talk of subsidies for farmers who suffer as a consequence of a much-needed increase in competition across the agricultural sector. Both these positions are foolhardy.
More than 250 years after it was published, Adam Smith’s “Wealth of Nations” still contains the most persuasive arguments in favor of free trade. In book IV he writes that, by using hothouses, Scotland could produce very good wine at 30 times the cost of that made in France. He then comments, “Would it be reasonable to prohibit the importation of all foreign wines, merely to encourage the making of burgundy in Scotland?”
The answer is a resounding “no,” and Korea can learn a lesson here. The nation should not encourage industries that have no comparative advantage, in other words, those areas where Korea is not able to produce goods or services at a lower relative cost than the United States.
Of course, that will not stop people trying. But the consequence of the continued protection of service industries and bail-outs for farmers will be to increase costs and reduce efficiency in those industries where Korea does have an advantage.
Helping the inefficient hinders the efficient. This is the first lesson Korea must learn in the free trade era.
Bilateral trade between the United States and Korea will, as a result of the FTA, exceed $90 billion per annum. For Korea to get its share of this huge opportunity it will need to change. I lived in New York for a decade and saw first-hand what makes America so successful. The ways in which New York differs from Seoul illustrate some of the ways in which Korea will have to evolve, in order to survive in the free trade era.
Women in the U.S. have been emancipated to a much greater extent. Their contribution is valued in ways that have not yet been acknowledged in many Korean companies. There is little subservience among American women, and Korean men will have to accept this quality among Korean women if they are going to build an economy that can truly thrive in a free trade environment.
Financial success is celebrated in the United States. There is little hunger for equality, but a huge appetite for wealth and admiration for those who make themselves rich. The belief that the fruits of success must be equally shared will have to be abandoned here if Korea is to fight successfully on a level playing field with Americans.
Diversity is also a key aspect of the American economy. The United States has used its comparative advantages to the full by deploying immigrants across the full range of its productive process. Every expert study worth its weight has argued that immigration is a key component of U.S. competitiveness.
Finally, the United States has slashed spending in the public sector, as it has fought its own battles to remain competitive. This has released resources into the private sector, boosting investment, reducing interest rates and helping to contain wages. By U.S. standards, Korea has a cumbersome, inefficient and costly public sector that crowds out private enterprise. To quote Smith once more, “Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct.” So true.
Free trade demands that Korea become an open, modern, diverse society. That is the message that lies between every line of the agreement signed this week.
For the FTA to work to Korea’s advantage, the nation must understand that change and enhanced productivity are often the same thing. The FTA means Korea will need to become more like America, and that’s not just a question of drinking more Starbucks.

*The writer is the deputy editor of the JoongAng Daily. Previously he was the New York correspondent for the BBC and the London Daily Mail. He is the author of ‘America’s Back Porch.’

by Daniel Jeffreys [danielj@joongang.co.kr]
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