Korea at a crossroads

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Korea at a crossroads

Korea is faced with troubles at home and abroad. The economy is sluggish, growing slower than the global average growth rate for the past five years. There are no signs of recovery or vitality. At this rate, the status of Korea’s economy in the world will be reduced gradually.

Wealth and income disparities are in progress faster than any other country, and the discord among classes is growing. Aggravated income distribution and excessive debt discourage spending and investment, and the rise of China’s manufacturing industries shakes the industrial foundation of Korea from the roots. Rapid aging of the population has led to low spending, low demand, low investment and low growth.

People are increasingly distrustful of law and order, state systems and the role of the government. Inhumane crimes are committed, social order is disorganized, and politics are divided. Today, the majority of Koreans are more pessimistic than optimistic about the future and have more despair than hope.

The UK national referendum in June that resulted in Brexit shows ominous signs of the direction the world is headed. Borders have already disappeared in the goods, capital and information markets. Science and technology development, the end of the Cold War and proliferation of the open market accelerated globalization and market integration and changed lifestyles rapidly.

When the international political and economic systems evolves to accommodate these changes, world peace and growth can be maintained. Until now, Europe has responded to the calls of the historic changes and has walked the path of integration and unity. The frames of sovereign states established in the 17th century have been broken, and Europe pursued unified standards, laws and mutual security. The 19 countries in the eurozone gave up the power to issue currency and make their own monetary policy, which are symbols of sovereignty.

But Brexit suggests that the path of integration is not likely to continue now. Since the global financial crisis, economies are in a slump, and the struggling middle class easily agree with the politicians who blame external factors for economic problems. The political and economic topography is changing rapidly. Politicians who advocate isolation and exclusionism over opening and cooperation are prevailing.

In the 1930s, the world experienced deflation and a prolonged slump due to worsening income distribution, shrinking demands and supply surpluses. Each country responded with currency devaluation and protectionist policies to make up for the dwindling domestic demands with foreign demands. The international currency order collapsed, and the pivot of the global economy shifted from Europe to the other side of the Atlantic.

The politicians who blamed foreign factors for domestic problems appealed to the people, and the way of isolation and confrontation ended in catastrophic outcomes. World War II resulted in tens of millions of casualties, and the United Kingdom and the United States re-established a new international order after the victory. Today, the United Kingdom and the United States are experiencing Brexit and the popularity of Donald Trump.

The post-war world order based on America’s absolute dominance in economic and military strengths and the multilateral systems such as the United Nations, International Monetary Fund and WTO has exposed its limits. The United States is losing influence, and China wants to break the existing order. Smaller countries can now reject what they don’t want to support.

The currency war and protectionism we saw in the 1930s is happening again. World War II did not occur because the intelligence, liberalism and logic in Europe and the United States at the time were not as good as today’s spirits. Hitler was a leader chosen by Germans through democratic procedures.

China’s emergence has already brought many changes in international politics and economic order. The changes so far are mere preludes. The economic map of the world is going back to the times before the 18th century. In the last 30 years, China’s share in the global economy grew from 3 percent to 13 percent. Its purchasing power is already greater than that of the United States. Now, China’s changes are impossible without changes to the world, and the world has to change along with China. Northeast Asia is responding sensitively.

While China attained today’s success through the opening and liberalization of the commodity market, it cannot skip the middle-income trap easily. Their productive population is already decreasing, and efficiency and sustainable growth won’t be possible without liberalization of the finance, labor and land markets. But it will be a process of reshuffling the Chinese Communist Party system and state government structure entirely, and it will bring changes in the political and economic topography of Northeast Asia and the world. North Korea’s change is likely to be a dependent variable in this process. The world will have to deal with this for the next 20 to 30 years.

Today, Korea needs to prepare for troubles at home and abroad by educating and training its work force and uniting citizens. Unfortunately, elites are corrupt and insensitive, and they became the core of the establishment. Unless we nurture young talent with international sensitivity, ethics and responsibility for the community and pursue overall national innovation, the country may be swept up in the coming tornado.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Aug. 11, Page 31

*The author is a professor of economics at Sogang University.

Cho Yoon-je
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