Korea not immune to Brexit fever

The bad dream has come true. The United Kingdom has chosen to leave the European Union. The fate of Britain has become shaky from a single vote where 72 percent of eligible British citizens participated and 52 percent cast ballots for “leave.” The world was stunned. The ripple effects have spread across financial markets around the world, and there is a dread of lasting consequences. The European continent’s political and economic future has become uncertain.

The British exit from the EU stems from disgruntlement over waning British influence and a flood of immigrants. Skepticism about a single community and globalization has also escalated.

Over the last half-century, cross-border economic interactions have increased because of trade and financial market liberalization.

Economic activity moves in a global context rather than in individual economies. The world has become borderless through fast advances in telecommunications, information and transportation technologies. Political, social and cultural exchanges have become commonplace, and people easily resettle on foreign soil.

The opening of markets and globalization have brought enormous benefits to the world. East Asian economies have to thank the global opening for their staggering rise. They turned into export powerhouses through the export of finished goods from the import of cheap raw and intermediate materials. They polished and advanced technologies and productivity through freer competition on the global stage. They have become more susceptible to external shocks due to higher reliance on other economies and suffered upheavals from occasional flights of capital, but they nevertheless benefited from the freer economic order.

States have long tried to integrate markets and promote globalization. They sought free trade agreements and eliminated tariffs. Investment, capital and labor flows have become freer. Economic integration has stifled political and military clashes and contributed to global peace.

Europe completed an integration that started with a steel and coal alliance in 1951, was enlarged to the European Community in 1967 and then established as the European Union in 1993. The Association of Southeast Asian Nations also emulated cross-border trade and expanded to a single economic community through the free flow of capital and labor.

But voices campaigning against globalization became louder, mostly from the underprivileged classes who were left out of the benefits of globalization. Blue-collar workers resented the cheaper foreign laborers who were stealing their jobs. The average real income of male Americans with high school diplomas has fallen 11 percent over the last 35 years, and the income gap with other groups has sharply widened. The nationalistic conservative Donald Trump, who is outspoken in attacking Washington’s free trade and liberal immigration policies, has become a formidable presidential candidate through the backing of poor white Americans.

Nationalism fans anti-globalization contagion. Integration and globalization uphold universal values and an international consensus.

Complaints are bred by undermined sovereignty and individuality through meddling from other states. Disgruntlement toward the EU’s surfeit of intervention in individual state affairs and its financial regulatory clout escalated, and governments clashed over Middle East refugees.

Scholars also joined the voice of concern about globalization. Some claim excess opening and globalization has widened economic disparities and worsened social and political unrest. Even the economists at the International Monetary Fund, which championed liberalization and globalization, admitted the downside in widening income inequality and warned that free capital flows can bring about global economic instability and crisis.

The British leave is expected to become a tipping point in Europe, battered by recession, terrorism and immigrant problems. More Europeans are beginning to value their own interests more than the common interests of the single bloc.

Korea has benefited greatly from the global order, but the World Trade Organization recently warned that protectionist trade actions by the G-20 countries have increased over the last six months at the fastest rate since 2008. Washington has criticized Seoul’s foreign exchange policy and seems poised to renegotiate bilateral free trade terms.

In the near term, authorities must come up with measures to minimize the ill effects of the so-called Brexit on exports and financial markets. In the longer run, we must strengthen our trade negotiating ability to seek new forms of economic cooperation and partnerships in Asia and globally. Domestic demand must be bolstered through more competitiveness in the services sector to build our resilience against external shocks.

We must continue with our efforts to ease social conflict and the economic divide so that nationalistic fervor does not overwhelm our soil.
Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, June 27, Page 31

*The author, a former senior economist at the Asian Development Bank, is an economics professor of Korea University.

Lee Jong-wha