‘Homeland economics’ can’t last forever

SHIN MIN-YOUNG
The author is a visiting professor of economics at Hongik University.

What I am particularly excited to teach about when lecturing on the Korean economy is the success of the country’s opening and its competition- and export-oriented growth strategy. While there were certainly adverse effects, Korea laid the foundation for leaping to an advanced economy amid the globalization wave in the 1980s.

But the world has changed. The success of China’s state-led economy, ignoring the rule-based order, and the consequential protectionist trade and government interventions from the exacerbation of the Sino-U.S. conflict are both threatening free trade and market openings. Major economies that have suffered from the pandemic and its supply chain disruptions are focusing on domestic production and “friendshoring” for “de-risking.” It is arguably the worst environmental change for the Korean economy.

The Economist’s special feature on Oct. 7 called the current international economic trend of cherishing government roles and technology “Homeland Economics.” The magazine claimed that such policies are difficult to sustain. When responding to external shocks such as infectious diseases and war, governments are more inefficient than markets. Excessive government spending, including subsidies, strains finances further. Moreover, there is not much the government can do in the era of technological innovation. Just think of the fast spread of artificial intelligence and energy conversion.

Supply chain de-risking — the core of homeland economics — is not likely to succeed either. For instance, Australia is shifting its investment in China to alternative countries such as Vietnam, but relocating half of the production facilities alone takes 35 years.

Also, there are limits to restricting imports from China. OECD member countries’ direct imports from China decreased recently, but their imports from third-world countries, who heavily rely on imports from China, rapidly increased instead.

Homeland economics is a trend that cannot last forever. The wave of liberalism spread fast with the appearance of U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher around 1980, but it gradually declined in the end. Likewise, homeland economics — an offshoot of Donald Trump’s election, Chinese President Xi Jinping’s fortification of his power, and Brexit — can be reversed at any time.

The wave of homeland economics is an external environment that is difficult to control. On Oct. 22, the International Monetary Fund predicted that Korea would suffer the greatest damages in the supply chain rebuilding. Korean companies must care about other governments, too. I extend my appreciation to them for continuing to grow silently despite their complex — and sometimes suffocating — surroundings.